Kayani, Fa ukh Nawaz
A icle
Rela ionship be ween o eign di ec in es men and
economic g ow h: A case o Romania
Pakis an Jou nal o Comme ce and Social Sciences (PJCSS)
P o ided in Coope a ion wi h:
Joha Educa ion Socie y, Pakis an (JESPK)
Sugges ed Ci a ion: Kayani, Fa ukh Nawaz (2024) : Rela ionship be ween o eign di ec in es men
and economic g ow h: A case o Romania, Pakis an Jou nal o Comme ce and Social Sciences
(PJCSS), ISSN 2309-8619, Joha Educa ion Socie y, Pakis an (JESPK), Laho e, Vol. 18, Iss. 4, pp.
832-847
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Pakis an Jou nal o Comme ce and Social Sciences
2024, Vol. 18(4), 832-847
Pak J Comme Soc Sci
Rela ionship be ween Fo eign Di ec In es men
and Economic G ow h: A Case o Romania
Fa ukh Nawaz Kayani
Facul y o Business S udies, A ab Open Uni e si y (AOU), Riyadh, Saudi A abia
Email: .kayani@a abou.edu.sa
A icle His o y
Recei ed: 04 Aug 2024
Re ised: 24 No 2024
Accep ed: 06 Dec 2024
Published: 31 Dec 2024
Abs ac
Inwa d Fo eign Di ec In es men (FDI) occupies a c ucial and undamen al impo ance in
he economic g ow h o any coun y. In his a icle we ied o gauge he impac o FDI
upon economic g ow h o Romania. We ex ac ed annual ime se ies da a o he dependen
a iable (GDP pe capi a g ow h) and explana o y a iables (FDI, G oss Capi al Fo ma ion
and Employmen ) o he pe iod spanning om 1993 o 2022. To de e mine he long un
ela ionship be ween he a iables, we used Au o eg essi e dis ibu ed lags (ARDL)
bounds es o co-in eg a ion ia EViews so wa e. The empi ical indings e ealed he
exis ence o a long- un ela ionship among he a iables o he model. We ound ha FDI
has a signi ican posi i e impac upon GDP; u he mo e, FDI is also uni-di ec ionally
causing he G oss Capi al Fo ma ion. These insigh s o e aluable implica ions o
policymake s aiming o op imize he economic impac o FDI; i is ecommended ha
Romania should ocus on FDI-led g ow h policies so ha economic g ow h could be u he
boos ed.
Keywo ds: Romania, FDI, economic g ow h, capi al o ma ion, employmen , Eas e n
Eu ope.
1. In oduc ion
Romania has been in ansi ion since he collapse o communism, and he majo i y o i s
ci izens expec ade libe aliza ion and o eign in lows o ha e a a o able impac on he
coun y's economy (C is ina & Ioana, 2020). On he o he side, he high immig a ion a e
in Romania is a hind ance o he coun y's capaci y o a ac o eign in es men . While he
loss o skilled wo ke s due o emig a ion has a nega i e impac on Romania's capaci y o
a ac FDI in he sho e m, he possibili y o e u ning labo has he po en ial o inc ease
he coun y's a ac i eness o in es men in he long un (Josi idis e al., 2020). Inc eased
human capi al gene a ion, echnological ex e nali y, and en y in o new o eign ma ke s
ha e all been no ed as possible FDI’s spillo e e ec s on he hos economy (Ge e al.,
2022). In e na ional comme ce allows o he un es ic ed low o goods, se ices, and
ac o s o p oduc ion ac oss na ional bounda ies. The p e ailing consensus among
Kayani
833
poli icians and economis s has con inually ad oca ed o he supe io i y o ee ade o e
o he ade models. This p e e ence s ems om i s pe cei ed abili y o alle ia e po e y,
mi iga e in la iona y p essu es, and os e job c ea ion. The heal h and educa ion indus ies
should be p io i ized (Agga wal & Ka was a, 2023).
Figu e 1 (below) shows GDP pe capi a g ow h a e (annual %) & Inwa d FDI (% GDP)
o Romania du ing he pe iod 1990-2023:
Figu e 1: GDP G ow h & Inwa d FDI (Sou ce: WDI 2024)
Fo eign di ec in es men has eme ged as a signi ican inancial esou ce o se e al
na ions commi ed o p omo ing ee ade and acili a ing he g ow h o mul ina ional
o ganiza ions. Ins i u ional e ec s on he g ow h o in e na ional ade and GDP ha e
ecei ed mo e a en ion in ecen yea s (Wang e al., 2023). The signi icance o es ablishing
obus ins i u ions canno be o e emphasized. The ins i u ional quali y o an economy may
be assessed by he ex en o which i s essen ial socioeconomic ac i i ies and beha io s a e
e ec i ely managed and shaped by mechanisms such as laws and egula ions (Tomizawa
e al., 2020). In de eloping and ansi ion economies, secu ing FDI is ypically conside ed
as a i al d i ing o ce since i may boos capi al c ea ion and job c ea ion, expo s, and
ans e s. The sec o 's co e is in echnical p ocesses and he sus ained de elopmen o new
echnologies, as well as he enhancemen o managemen and ma ke ing capabili ies o
enhance labo e iciency (Faisal e al., 2021). Ra he han depending on o eign in es men
o indigenous economic esou ces, Romania pe sis s in p io i izing he expansion o la ge
-8
-6
-4
-2
0
2
4
6
8
10
12
14
1990 1995 2000 2005 2010 2015 2020 2025
FDI & GDP G ow h
GDP FDI
Fo eign Di ec In es men and Economic G ow h - Romania
834
en e p ises. The p oposal o p i a ize he ene gy and inance sec o s has ga ne ed a en ion
om global in es o s.
Fo eign di ec in es men has a subs an ial in luence on se e al dimensions o economic
de elopmen , including he p omo ion o nascen echnologies, he augmen a ion o human
esou ce capaci ies, he encou agemen o domes ic in es men s, and acili a ing o global
comme ce (Baj ami & Zeqi i, 2019). FDI is conside ed as one o he majo d i ing o ces
behind GDP g ow h, and i also ac s as a means o ans e ing la es echnologies o he
hos coun ies (Aysan e al, 2020; Kayani, 2021; Kayani e . al., 2024; Kayani & Gan, 2022;
Nawaz e al, 2023). Coun ies wi h open economies end o a ac a la ge p opo ion o
FDI in compa ison o hose wi h s ic e go e nance. This may be a ibu ed o he ac ha
open economies p o ide in es o s he oppo uni y o access a highly educa ed wo k o ce
and chances o de elopmen ha beyond he a e age le el (Simionescu & Na oş, 2019).
Exe ing signi ican con ol o in luence on he ope a ions o o eign en e p ises cons i u es
a p ominen cha ac e is ic o FDI (Haudi e al., 2020). The examina ion o he co ela ion
be ween inbound FDI and economic g ow h in Romania plays a c ucial ole in enhancing
comp ehension o he na ion's economic de elopmen dynamics. Unde s anding his
in o ma ion is o u mos impo ance o policymake s and in es o s who a e aiming o
maximize FDI in lows in o de o achie e sus ained economic g ow h.
Gaining insigh in o he p ocesses by which hese spillo e s ake place enables he
de elopmen o s a egies ha bols e he abili y o local businesses o abso b and use such
spillo e e ec s. The iden i ica ion o ins i u ional ci cums ances ha acili a e a o able
esul s om FDI may p o ide guidance o policymake s in es ablishing a hospi able
en i onmen ha suppo s long- e m economic de elopmen . The s udy p o ides
academics and policymake s wi h aluable in o ma ion ha can be used o de elop policies
aimed a ha nessing o eign in es men s o d i e Romania's economic p og ess.
1.1 No el y and Resea ch Con ibu ion
The con ibu ion o he p esen esea ch o he p io li e a u e on o eign di ec in es men ,
capi al o ma ion and employmen in Romania is as ollows. In con as o p io wo ks
which ha e sepa a ely, o a mos in simple pai s, ocused hese ac o s on hei
in es iga ion, his esea ch sys ema ically in eg a es all he elemen s unde conside a ion.
This wo k is cu en in p esen ing in o ma ion conce ning Romania’s economic g ow h
and speci ically he impac o FDI upon economic g ow h ollowing he COVID-19
pandemic. Unlike he p e ious esea ch, his s udy conside ed he mos ecen and upda ed
da ase o he empi ical analysis o cap u e he mos ecen ends in he s udy a ea. In he
end, his wo k no only con ibu es o he li e a u e on Eu opean eme ging economies bu
also o e s a me hodological app oach ha could be applicable o o he esea ch o his
kind in o he Eu opean eme ging economies. Hence, i is p oposed ha h ough he analysis
o hese a ious ac o s in e ac ing wi h each o he , his s udy’s goal is o unde s and policy
in e en ion and in es men poin s. Thus, he esea ch objec i es include i s ,
unde s anding each o hese a iables and second, how hese a iables combine can impac
Kayani
835
economic g ow h o Romania’s and hi d, he imp o emen o policy-making ha
su icien ly add esses he g ow h and de elopmen o he Romanian economy.
The emainde o he pape is o ganized as ollows. Sec ion 2 discusses he exis ing
li e a u e e iew; sec ion 3 e e s o he da a and me hodology. Sec ion 4 sha es he esul s
and discussion. Finally, sec ion 5 comp ises o conclusion and u u e esea ch di ec ions.
2. Li e a u e Re iew
Se e al empi ical s udies ha e looked a he connec ion be ween FDI in lux and GDP
g ow h in di e en pa s o he globe. Kuma i e al. (2023), Sinha and Sengup a (2022),
Belloumi and Toua i (2022) and Zeeshan e al. (2021) a e only a ew o he s udies whose
indings may be used as bo h heo e ical and p ac ical unde pinnings o his in es iga ion.
Using panel da a analysis, Kueh and Soo (2020) analyzed he ac o s ha in luenced FDI
lows in o 38 de eloping coun ies om 2000 o 2004. The FDI ne in lows exhibi ed
nega i e and signi ican s a is ical co ela ions wi h bo h he a e o in la ion and ax.
Wacke e al. (2016) epo ed ha expo -o ien ed FDI in lows o S i Lanka ha e
ou pe o med ma ke -seeking FDI. Nega i e and s a is ically signi ican e ec s we e ound
o he eal e ec i e exchange a e a iable. I showed ha he eal p ac ical exchange a e
app ecia ion lowe ed he FDI in o S i Lanka. FDI imp o ed poli ical s abili y signi ican ly.
Acco ding o he indings o Yusu e al. (2020), i was shown ha open economic policies
had a highe deg ee o e ec i eness in a ac ing FDI as compa ed o pe iods cha ac e ized
by economic es ic ion. The s udy indings indica e ha o augmen FDI in lows, i is
impe a i e o e ec i ely ackle and mi iga e exis ing ba ie s, diminish policy ambigui y,
and boos o e all ope a ional e ec i eness. The s udy conduc ed by Abel e al. (2021)
examined he ac o s o FDI in lows in Zimbabwe h oughou he pe iod spanning om
1980 o 2011. The e exis s a a o able co ela ion be ween long- e m FDI in lux and bo h
anspa ency in ade and g oss ixed capi al o ma ion.
The s udy conduc ed by Kuma i e al. (2023) shown a subs an ial nega i e ela ionship
be ween he in la ion a e and he in low o FDI. Fu he mo e, in con as o he conclusions
p esen ed in p e ious s udies (Mohsin e al., 2021), he empi ical esul s did no suppo
he no ion ha ailed GDP, o eign deb , s a e expendi u e, o delayed expo s a e
signi ican de e minan s o sho - e m FDI in lows. Aluko e al. (2023) conduc ed a s udy
using panel da a including 72 na ions h oughou he pe iod o 1995-2004. The objec i e
o hei esea ch was o examine he de e minan s ha os e FDI, explo e he ela ionship
be ween FDI and ee ade, and analyze he in es men oppo uni ies as seen by o eign
i ms. The s udy conduc ed by RAMOS (2018) iden i ied many impo an ac o s ha
migh accoun o he obse ed ou comes. The indings indica e ha hese a iables exhibi
s ong associa ions wi h he expec ed signals. None heless, he analysis e ealed no
quan i a i ely signi ican co ela ion be ween he size o he ma ke and he pa ame e s
ela ed o human capi al ega ding FDI. The esea ch unde aken by Asamoah e al. (2019)
aimed o analyze he impac o ade libe aliza ion on FDI in he A ican con inen . A
Fo eign Di ec In es men and Economic G ow h - Romania
836
ep esen a i e g oup o 34 A ican na ions was chosen by he in es iga o s, including he
ime ame om 1996 o 2016. The de e mining ac o in his esea ch was he a io o FDI
o GDP. The empi ical esea ch conduc ed using he andom e ec s model demons a ed a
posi i e co ela ion be ween ade libe aliza ion and he quan i y o FDI in lows. The
empi ical indings indica e ha he e ec o capi al openness on FDI in lows is posi i e
bu limi ed in magni ude. The pape p oposes he implemen a ion o ce ain capi al and
socioeconomic indica o s. In hei s udy, Shah and Khan (2016) pe o med an analysis o
examine he e ec s o ade libe aliza ion on FDI in i e ASEAN5 coun ies. The s udy
included a ime ame om 1970 o 2013. The analysis used a andom e ec s model. The
esul s sugges ha ma ke size and he le el o human capi al wi h he en ance o FDI
posi i ely co ela ed. Ne e heless, i is wo h no ing ha he impac o mul ila e al and
egional ading ag eemen s on FDI emains inconclusi e, bu ade p e e ences do ha e a
clea e ec .
Ra hnayaka Mudiyanselage e al. (2021) conduc ed an empi ical in es iga ion using a
panel da a analysis me hodology o examine he de e minan s o FDI in lows in Romania.
The s udy examined he in low o FDI in o Romania om o he coun ies. The analysis
included many independen a iables, including he coun y's GDP, expo g ow h o he
sou ce na ions, ela i e in e na ional exchange a e, and di e ences in bo owing cos s,
ela i e labo cos s, and he na ion's isk sco e. The esea ch indings indica e a nega i e
ela ionship be ween FDI and he expo capabili ies o he coun y o o igin. Sabi e al.
(2019) conduc ed a s udy whe eby hey examined he impac o ins i u ional quali y on FDI
in lows using panel da a h oughou he pe iod o 1996 o 2016. The s udy was ca ied ou
wi h he me hodical Gene alized Me hod. The ins i u ional quali y’s impac on FDI in lows
was assessed while accoun ing o ac o s such as in la ion, openness o ade, cell phone
usage pe 100 indi iduals, GDP pe household, and he p opo ion o ag icul u e's
con ibu ion o GDP in e ms o alue-added. The empi ical indings indica e ha
ins i u ional quali y has a posi i e impac on FDI ac oss all ca ego ies o s a es. De eloped
coun ies had highe le els o he sup emacy o legisla ion, poli ical secu i y, go e nmen
e iciency, go e nmen e ec i eness, go e nmen oice and accoun abili y, and he
amoun o o eign di ec in es men compa ed o hei de eloping coun e pa s. The FDI
in lows o de eloped coun ies expe ienced a nega i e impac om a ious ac o s, like
GDP pe capi a, he pe cen age o ag icul u e alue-added in ela ion o GDP, and in la ion.
Con e sely, FDI in lows in o de eloping coun ies we e posi i ely in luenced by ac o s
like GDP pe capi a, ade openness, he pe cen age o ag icul u e alue-added in ela ion
o GDP, and in as uc u e.
Gunawa dhana and Damayan hi (2019) conduc ed a s udy ha conside ed a ious ac o s
ha could po en ially in luence he low o FDI. The s udy aimed o analyze he in luen ial
ac o s a ec ing FDI in low in he coun ies belonging o he SAARC, and o assess hei
impac on economic g ow h du ing he pe iod om 1980 o 2018. The esul s o he s udy
indica e ha FDI in lows in o he Sou h Asian egion a e signi ican ly impac ed by se e al
ac o s, including he g ow h o GDP pe capi a, he balance o cu en accoun s, he le el
Kayani
837
o inancial deepening (measu ed by he amoun o money and quasi money in ci cula ion),
and he deg ee o ade openness. The coe icien o he INF a iable exhibi ed an upwa d
end; howe e , i did no each s a is ical signi icance. This implies ha he in la ion’s
impac on he luc ua ion o FDI in lows in he egion is no signi ican . Fu he mo e, he
in low o FDI was shown o be highly impac ed by in as uc u e, as well as o he
quali a i e a ibu es. A bidi ec ional G ange causali y ela ionship be ween ade and FDI
has been iden i ied among se en s a es wi hin he SAARC egion.
Be ween he yea s 1989 and 2016, Adewale (2022) used an OLS and Fixed E ec model
o assess he de e minan s o FDI in lows in o he Vise g ad coun ies. In he con ex o he
Vise g ad s a es, he e exis s no subs an ial co ela ion be ween FDI in lows and se e al
economic indica o s, such as GDP pe capi a, in la ion a e, unemploymen a e, o
inno a ion cha ac e is ics. The e exis s a no able and s a is ically signi ican associa ion
be ween he in lux o FDI and wo key ac o s: he le el o g oss ea nings and he ac ion
o he wo k o ce wi h a minimum o seconda y educa ion. The a o emen ioned ac o s had
a pi o al ole in in luencing he in luencing FDI. The esul s o his esea ch sugges ha
he ou na ions examined placed a highe emphasis on o e ing in es men assis ance, like
ax ad an ages and o he o ms o suppo , a he han conside ing essen ial
mac oeconomic a iables when a emp ing o a ac FDI. In hei s udy, Rao e al. (2023)
conduc ed an analysis o he many a iables ha con ibu ed o FDI in he egions o Sou h-
Eas Asia and Sou h Asia. The independen de e minan s o he model encompassed ma ke
sha e, economic s abiliza ion and de elopmen p ospec s, labo cos , in as uc u e
capaci y, eedom o ade, o al labo o ce, and g oss capi al o ma ion. The s udy esul s
indica e ha many a iables may con ibu e o he in low o FDI in Sou h Asia. These
elemen s include he size o he indus y, he le el o ade anspa ency, labo cos s, and
he a ailabili y o in as uc u e acili ies, iscal s abili y, and de elopmen p ospec s.
Ne e heless, he a iables o g oss capi al c ea ion and labo o ce componen s did no
demons a e s a is ical signi icance. The analysis indica ed ha he a iabili y in FDI
in lows ac oss he yea s could no be adequa ely accoun ed o ei he by luc ua ions in
g oss capi al o ma ion o labo cos s.
A omasodun (2022) conduc ed a s udy on he pa e ns and de e minan s o FDI in A ica.
The esea che used a pooled eg ession app oach o examine he a iables ha in luenced
he ne in lows o FDI o A ica be ween 1976 and 1996. The ac o s ha a e au onomous
in his model include inancial consolida ion (measu ed by M2/GDP), ax on e enue
global comme ce, phone mainlines pe 1,000 indi iduals, agg ega e deb , comme ce as a
sha e o GDP, luc ua ions in exchange a es, and egion. Wi hin he amewo k o his
con ex , he e m " egion" is used as an in ege , se ing as a ep esen a ion o sub-Saha an
A ican a eas. The pa ame e s o c edi o he p i a e indus y, expo p ocessing egion,
and capi al gain ax we e ound o ha e a highly signi ican ad e se impac . Con e sely,
he a iables o GDP yea ly inc ease and acili ies as symbolized by he numbe o cell
Fo eign Di ec In es men and Economic G ow h - Romania
838
phones pe 1,000 indi iduals, we e ound o ha e an empi ically no ewo hy posi i e e ec .
On he con a y, he impac o poli ical and ci il libe ies, ising p ices, economic dep h,
a i s on ade, he epaymen o deb p opo ion, and he luc ua ion o he cu ency
exchange a e on he in low o FDI in o A ica was shown o be insigni ican . Ul ima ely,
i is sugges ed ha he enhancemen o in as uc u e in A ican coun ies should be
pu sued o augmen in e na ional in es men . In hei s udy, A emo and Abiodun (2020)
examined he ela ionship be ween FDI and ade libe aliza ion in 25 sub-Saha an A ican
s a es. The esea che s used panel da a spanning he yea s 1977 o 2009 o explo e he
G ange causali y ela ionships be ween hese wo a iables. The esul s indica ed a
ecip ocal causal associa ion be ween ade libe aliza ion and FDI in Sub-Saha an na ions.
Ul ima ely, i was sugges ed ha A ican s a es should enhance hei capabili ies in
expo ing and p oducing o s a egically posi ion hemsel es o he a ac ion o FDI.
Mwakabungu & Kauangal (2023) employed he au o eg essi e dis ibu ed lag model and
ound he bo h long- un and sho - un signi ican posi i e ela ionship be ween FDI &
economic g ow h in case o Tanzania. Fazaalloh (2024) also ound he signi ican posi i e
ela ionship be ween FDI & economic g ow h in case o Indosnesia. The s udy conduc ed
by Hamid and Jena (2020) used G ange causali y es s o in es iga e he ela ionships
amongs FDI and comme ce in he con ex o India. The empi ical analysis e ealed ha
China's FDI had a linea causal associa ion wi h impo s, indica ing ha FDI in luenced
impo s. Con e sely, FDI demons a ed a bila e al causal link wi h expo s, sugges ing ha
FDI in luenced expo s and ice e sa. In he con ex o India, a signi ican associa ion was
seen be ween FDI and bo h impo s and expo s, as well as be ween expo s and impo s,
indica ing a ecip ocal link. Cama a (2023) used he ARDL Bounds es me hodology o
analyze he impac o bo h mone a y and non-economic ac o s on he o al amoun o FDI.
The economic ac o s included in his s udy comp ise he T easu y bill pe cen age, e ail
p ice index, eal GDP, o eign exchange a e, co po a e ax, labo cos , and ade
accessibili y. On he o he hand, he poli ical dimensions conside ed consis o poli ical
unp edic abili y, he occu ence o agg ession o e o is ac i i y, and he le el o
co up ion egula ion. The esul s o he ex ended- e m equa ion sugges ha he size o he
economy, as measu ed by GDP, has a a o able in luence on he in lux o FDI ia he
de alua ion o domes ic cu encies, mo gage a es, and wage a es. Fu he mo e, he
emi ances also play an impo an ole in he economic g ow h and po e y educ ion o
any coun y (Nawaz e al, 2023).
3. Da a and Me hodology
3.1. Da a and Va iables
We ook G oss Domes ic P oduc pe capi a (GDP) as dependen a iable whe eas inwa d
FDI as % o GDP (FDI); capi al o ma ion as % o GDP (CFM) & Employmen as % o
o al employmen (EMP) as independen a iables. We ook he annual ime se ies da a
om 1993 o 2022 om Wo ld De elopmen Indica o s. The u he desc ip ion o he
a iables is sha ed below in able 1.
Kayani
839
Table 1: Da a and Va iables Desc ip ion
Va iables
Symbols
Desc ip ion &
Measu emen Scale
Da a
Sou ce
Economic
G ow h
GDP
GDP pe capi a g ow h
(annual %)
WDI, 2024
Fo eign
Di ec
In es men
FDI
Fo eign di ec in es men ,
ne in lows (% o GDP)
WDI, 2024
Capi al
Fo ma ion
CFM
G oss Capi al Fo ma ion
(% o GDP)
WDI, 2024
Employmen
EMP
Employmen in indus y
(% o o al employmen )
WDI, 2024
3.2. Econome ic Model
In his s udy we a e aiming o assess he impac o inwa d FDI upon economic g ow h o
Romania. GDP pe capi a is dependen upon Inwa d FDI, capi al o ma ion & employmen
e c.
GDP =
𝑓
(FDI , CFM , EMP ) (1)
The gene al model o be es ima ed is sha ed below
GDP = b0 + b1FDI + b2CFM + b3EMP + e (2)
whe e
GDP = GDP pe capi a g ow h (annual %)
FDI = Inwa d Fo eign Di ec In es men (% o GDP)
CFM = G oss Capi al Fo ma ion (% o GDP)
EMP = Employmen in indus y (% o o al employmen )
= ime om 1993 - 2022
e = e o e m
The long- un ela ionship can be speci ied ia Au o eg essi e Dis ibu ed Lag Model
equa ion as below
GDP = b0 + b1GDP -1 + b2FDI -1 + b3CFM -1 +b4EMP -1 + e (3)
Whe e GDP is he GDP pe capi a g ow h om 1993 o 2022. Whe eas b1, b2, b3 & b4 a e
he long- un coe icien s and e is he e o e m. We apply ARDL co-in eg a ion when he
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