IMPACT OF FOREIGN DIRECT INVESTMENTS ON ECONOMIC GROWTH IN THE EUROPEAN UNION

Apstrakt

Investments represent a factor of economic growth and development, regardless of their internal or external origin. Foreign Direct Investments (FDI) represent a constituent of the total investments, meaning that they have a certain impact on economic growth. The motives of investors in capital transfers to other countries are numerous, causing worldwide foreign direct investment to continuously increase. Such trends are periodically threatened by instability periods on a global scale. Most of the world economies are open to the inflow and to the outflow of investments into other countries. The economy of the European Union is the world’s leading economy with the highest level of transparency for both import and export of capital.

The starting hypothesis of this paper is the evidence of correlation between foreign direct investment and gross domestic product growth. For the total period analyzed from year 2004 to 2012 there was a minor but a positive correlation (r=0.183), which to a certain extent proves the hypothesis about the FDI impact on economic growth. The correlation indicates a certain, but not a significant contribution of FDI to economic growth.

Analyses per sub-periods confirm the hypothesis, for during a stable sub-period from year 2004 to 2007 a strong and positive correlation was made (r1=0.992), indicating a significant contribution of foreign direct investment to the growth, while the economically unstable period is characterized by negative and insignificant correlation between foreign direct investment and GDP growth (r2=- 0.237). It has been proven that the trends of the values analyzed are identical to the macroeconomic theories and relevant economic practice.