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Journal of Competitiveness

A Vector Autoregression Analysis of Foreign Direct Investment and Its Link to Competitiveness

Marinko Skare, Dajana Cvek

Keywords:
foreign direct investments, vector autoregression, competitiveness, economic growth, macroeconomic policy

Abstract:
This study has investigated the impact of foreign investments on competitiveness in Croatia in terms of macroeconomic stability conditions using data from 2002 to 2017. In this paper, we focus on the relationship between critical macroeconomic indicators and foreign direct investments (FDI) as a growth and competitiveness driving factor. To study the impact of FDI on competitiveness levels in Croatia, time series methods are used. Macroeconomic stability is a necessary but not sufficient condition for economic competitiveness. FDI can increase the level of economy’s competitiveness, although the total effect depends on the FDI structure (greenfield vs brownfield). The vector auto-regression (VAR) model and Granger causality have identified a decrease in FDI inflows in the recession period. There is a correlation between FDI, employment, GDP and exports. The goal of our study is to investigate the impact of FDI on macroeconomic indicators, FDI inflow determinants, and their impact on the overall competitiveness and growth. In this study, we identify and explain the positive and negative effects of FDI setting the framework for efficient macroeconomic policy. The results should serve policymakers in efforts to improve decisions that affect the country’s macroeconomic competitiveness. Significant differences were demonstrated in Croatia’s macroeconomic performance over the observed period. Our results show FDI as a potential inefficiency growth factor among selected indicators if it is not controlled in terms of investment structures and funding sources. The country’s competitiveness depends on stock investment, but even more on the structure of the FDI flowing in the economy.

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A Vector Autoregression Analysis of Foreign Direct Investment and Its Link to Competitiveness [PDF file] [Filesize: 1.07 MB]

10.7441/joc.2020.04.08


Skare, M., & Cvek, D. (2020). A Vector Autoregression Analysis of Foreign Direct Investment and Its Link to Competitiveness. Journal of Competitiveness, 12(4), 127–142. https://doi.org/10.7441/joc.2020.04.08

Journal of Competitiveness

  

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ISSN 1804-171X (Print); eISSN 1804-1728 (On-line)


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