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Structural changes, FDI, and economic growth: evidence from the Baltic states

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  • Manuchehr Irandoust

    (Halmstad University)

Abstract

Despite the fact that previous studies have extensively investigated the foreign direct investment (FDI)-growth nexus, those studies have not considered the role of terms of trade as a proxy for international competitiveness and structural changes. This paper investigates the causal nexus between FDI, growth, and terms of trade volatility (TOTV) in Estonia, Latvia, and Lithuania by constructing a vector autoregression model. On the basis of the Granger non-causality procedure developed by Toda and Yamamoto (J Econom 66:225–250, 1995) and Yamada and Toda (J Econom 86:55–95, 1998), the results show that the causality is bidirectional between FDI and growth in Estonia and unidirectional (running from FDI to growth) in Latvia and Lithuania. The results also confirm causal linkages between FDI and TOTV in the sample countries. The policy implication of these results is that, by promoting growth and structural reforms, the recipient countries can encourage FDI inflows and, this in turn, can affect growth. In addition, multinationals’ activities and TOTV show the presence of a feedback between these two variables.

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  • Manuchehr Irandoust, 2016. "Structural changes, FDI, and economic growth: evidence from the Baltic states," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 5(1), pages 1-9, December.
    • Handle: RePEc:spr:jecstr:v:5:y:2016:i:1:d:10.1186_s40008-016-0045-8
    DOI: 10.1186/s40008-016-0045-8
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    Cited by:

    1. Andrzej Cieślik & Oleg Gurshev, 2021. "Factor Endowments, Economic Integration, Round-Tripping, and Inward FDI: Evidence from the Baltic Economies," JRFM, MDPI, vol. 14(8), pages 1-26, July.
    2. Ayamba Emmanuel Caesar & Chen HaiBo & Thomas Bilaliib Udimal & Andrew Osei-Agyemang, 2018. "Foreign Direct Investment, Growth of Output Indicators and Economic Growth in China: Empirical Evidence on Causal Links," International Journal of Economics and Financial Issues, Econjournals, vol. 8(3), pages 315-322.
    3. Marian Gorski & Patrycja Chodnicka-Jaworska, 2019. "The Process of Catching up with the Economic Development of OECD Countries and the Role of Foreign Direct Investment in this Process," Book, University of Warsaw, Faculty of Management, edition 1, volume 1, number y:2019:v:1:ch:8:p:165-186 edited by Justin Yifu Lin & Alojzy Z. Nowak, June.
    4. ArÅ«nas Burinskas & ArÅ«nas Burinskas & Rasmus Bøgh Holmen & Manuela TvaronaviÄ ienÄ— & AgnÄ— Å imelytÄ— & Kristina RazminienÄ—, 2021. "FDI, technology & knowledge transfer from Nordic to Baltic countries," Insights into Regional Development, VsI Entrepreneurship and Sustainability Center, vol. 3(3), pages 31-55, September.
    5. Arūnas Burinskas & Rasmus Bøgh Holmen & Manuela Tvaronavičienė & Agnė Šimelytė & Kristina Razminienė, 2021. "FDI, technology & knowledge transfer from Nordic to Baltic countries," Post-Print hal-03583969, HAL.

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    More about this item

    Keywords

    Foreign direct investment; Causality; Baltic countries; Economic growth; Terms of trade volatility; Structural changes;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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