FDI and Economic Growth in European Transition Economies: Panel Data Analysis

Authors : Yağmur SAĞLAM

Pages : 123-135

View : 119 | Download : 9

Publication Date : 2017-04-25

Article Type : Research Paper

Abstract : The main purpose of this paper is to investigate relationship between foreign direct investment and economic growth based on 14 European Transition Economies for the period 1995 to 2014. Empirical model includes GDP per capita growth insert ignore into journalissuearticles values(% annual);, foreign direct investment, net inflows insert ignore into journalissuearticles values(% GDP); and composite index of control variables which developed with PCA. Firstly homogeneity and cross sectional dependence among units are examined with Delta and  tests and it is found that all series have heterogeneity and cross sectional dependency. For that reason, second generation Multifactor error structure insert ignore into journalissuearticles values(Pesaran et al, 2013); panel unit root test is used and it is also taken into account effect of unobserved common factors as a prerequisite of CCE Model just after proving the co-integration relationship and causality between variables via of Durbin-Hausmann insert ignore into journalissuearticles values(Westerlund, 2008); co-integration and Dumetriscu-Hurlin insert ignore into journalissuearticles values(2012); causality tests. Obtained results strongly support one-way causality from foreign direct investments and composite index to economic growth. Unfortunately, there is no causality between foreign direct investments and composite index of control variables. Our findings indicate that foreign direct investments contribute negatively to economic growth in contrast to theory points out but control variables contribute positively at European transition countries.
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