A VAR analysis of the connection between FDI and economic growth in Romania

Abstract

The impact of FDI on economic growth is neither homogeneous, nor completely clarified. Due to the accumulation of capital in the host economy, FDI is expected to encourage the incorporation of new inputs and technologies in the process of production. However, the impact of FDIon economic growth is not so shaped up in empirical studies. Accordingly, while some studies remarked a positive impact of FDI on economic growth, others showed a negative relationship between the two variables. In this article, we carried out an analysis of vector autoregressive type (VAR), so as to identify the relationship between FDI and economic growth in Romania between1991-2009. The main conclusion of our study is that the FDI volume does not initiate growth; and that economic growth is an important factor in terms of attracting FDI in Romania.

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