Title: Do foreign direct investments accelerate economic growth? The case of the Republic of Macedonia

Authors: Selma Kurtishi-Kastrati; Veland Ramadani; Léo-Paul Dana; Vanessa Ratten

Addresses: Faculty of Business, American University of the Middle East, Kuwait City, Kuwait ' Faculty of Business and Economics, South-East European University, Tetovo, Macedonia ' Montpellier Business School, Montpellier Research in Management, 2300 Avenue des Moulins, Montpellier, France ' La Trobe Business School, La Trobe University, Melbourne, Australia

Abstract: The aim of this paper is to examine the long-run and the short-run relationships between foreign direct investment (FDI) and economic growth in the Republic of Macedonia by applying the cointegration analysis and error correction model to identify the variables explaining FDI determinants in the Republic of Macedonia. The research further attempts to investigate the effect of FDI on economic growth of the Republic of Macedonia using the methodology of vector auto regression and Granger causality test in this specific country. Out of the general conclusions it is evident that despite the above-average growth rates in both gross domestic product (GDP) and FDI in the country, we have found that GDP does not seem to induce FDI and likewise, FDI seems not to induce GDP. It is possible that the nature of this relationship is influenced by other institutional and economic factors. The paper concludes by offering some suggestions to economic policy makers involved in FDI particularly those in transition economies and high-growth potential areas. Suggestions for future research and implications for practice are also stated in the paper.

Keywords: foreign direct investment; FDI; economic growth; cointegration analysis; error correction model; ECM; vector auto regression; VAR; Granger causality test; Macedonia; gross domestic product; GDP; economic policy; transition economies.

DOI: 10.1504/IJC.2016.075903

International Journal of Competitiveness, 2016 Vol.1 No.1, pp.71 - 98

Received: 13 Aug 2015
Accepted: 21 Sep 2015
Published online: 12 Apr 2016 *