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Roles of Macroeconomic Variables as the Determinants of Foreign Direct Investment in Hungary

UTAI UPRASEN
EU연구소 (Institute for European Union Studies)|2016.10|EU연구 (Journal of European Union Studies)|제44호|pp. 105-146|DOI 10.18109/jeus.2016..44.105

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DeterminantsGranger causality testMacroeconomic variablesForeign direct investment(FDI)Autoregressive distributed lag(ARDL) model
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초록

The existing literature on determinants of inward FDI in Hungary mostly adopted a panel data model as the empirical framework. This study examines the roles of macroeconomic variables as the determinants of FDI. The time series model: an autoregressive distributed lag(ARDL) cointegration model is employed for the empirical analysis, using the quarterly data during 1998:Q1-2015:Q4. The empirical results indicate that there is a long run relationship between macroeconomic variables and inward FDI. In addition, in the long run relationship, the country’s GDP, money supply and interest rate have positive relationships with FDI, whereas the real effective exchange rate shows negative relations with the FDI. The inflation rate and degree of trade openness play no role as determinants of FDI. The results from the Toda-Yamamoto approach for the Granger causality test support the findings of the ARDL model. The research findings imply that market-seeking FDI still plays a significant role in Hungary. The important policy implication is that in order to attract more inward FDI, Hungary needs to effectively manage their GDP, money supply, exchange rates and interest rates, rather than their inflation rates and trade liberalization.

Abstract

The existing literature on determinants of inward FDI in Hungary mostly adopted a panel data model as the empirical framework. This study examines the roles of macroeconomic variables as the determinants of FDI. The time series model: an autoregressive distributed lag(ARDL) cointegration model is employed for the empirical analysis, using the quarterly data during 1998:Q1-2015:Q4. The empirical results indicate that there is a long run relationship between macroeconomic variables and inward FDI. In addition, in the long run relationship, the country’s GDP, money supply and interest rate have positive relationships with FDI, whereas the real effective exchange rate shows negative relations with the FDI. The inflation rate and degree of trade openness play no role as determinants of FDI. The results from the Toda-Yamamoto approach for the Granger causality test support the findings of the ARDL model. The research findings imply that market-seeking FDI still plays a significant role in Hungary. The important policy implication is that in order to attract more inward FDI, Hungary needs to effectively manage their GDP, money supply, exchange rates and interest rates, rather than their inflation rates and trade liberalization.

참고문헌 (45)

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