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
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