The relation between economic growth and foreign direct investment during the economic crisis in the European Union

Mihaela Simionescu

Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, 2016, vol. 34, issue 1, 187-213

Abstract: The goal of this research is to investigate the relationship between economic growth and foreign direct investment inflows in the European Union (EU-28) in the period of the recent economic crisis. Panel data approach and Bayesian techniques are employed to solve the problem of a short set of data (2008–2014). The panel data approaches (panel vector-autoregressive model and Bayesian random effect models) identified a reciprocal and positive relationship between FDI and economic growth in EU-28 starting with 2008. The individual approach based on Bayesian linear regressions identified this tendency as being specific for most of the EU-28 countries. However, there are some countries for which higher FDI did not generate economic growth and some countries where higher GDP did not attract more FDI and FDI did not bring economic growth. According to cluster analysis, the disparities among countries regarding the FDI distribution according to GDP growth and GDP rate distribution according to FDI diminished in 2014 compared to 2008. The basic conclusion is that on overall in the European Union there was a reciprocal relationship between economic growth and FDI since the beginning of the crisis with a tendency of reducing disparities between countries in attracting FDI.

Keywords: economic growth; foreign direct investment; panel data; Bayesian model; crisis (search for similar items in EconPapers)
JEL-codes: C51 C53 F21 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:rfe:zbefri:v:34:y:2016:i:1:p:187-213

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