Causality between Greenfield Investments, Regulatory Quality, and Economic growth: Is the Western Balkans different?
Main Article Content
Abstract
The study aims to examine the causality link between Greenfield Investments, Regulatory Quality, and Economic Growth by using seven Western Balkan countries between 2003 and 2022. Johansen cointegration tests, the VECM model, and multiple empirical unit root tests are the foundation of the empirical analysis. The study's findings indicate that, in the short run, GFI-led growth in Albania and North Macedonia is supported. In the long run, the analysis backs the growth driven by GFI in Serbia and Montenegro and the growth driven by regulatory quality in Albania, Bosnia and Herzegovina, North Macedonia, Serbia, Montenegro, and Bulgaria. The findings support the growth driven by regulatory quality in most Western Balkan countries, reassuring national policymakers that encouraging improvements in regulatory quality and GFI inflows is warranted and will ultimately spur economic growth.
Article Details
Section
Articles
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
Once the manuscript is accepted for publication, authors shall transfer the copyright to the publisher. If the submitted manuscript is not accepted for printing by the journal, the authors shall retain all their rights. The following rights on the manuscript are transferred to the publisher, including any supplementary materials and any parts, extracts or elements of the manuscript:
- the right to reproduce and distribute the manuscript in printed form, including print-on-demand;
- the right to print prepublications, reprints and special editions of the manuscript;
- the right to translate the manuscript into other languages;
- the right to reproduce the manuscript using photomechanical or similar means including, but not limited to photocopy, and the right to distribute these copies;
- the right to reproduce and distribute the manuscript electronically or optically using and all data carriers or storage media, and especially in machine readable/digitalized form on data carriers such as hard drive, CD-ROM, DVD, Blu-ray Disc (BD), Mini Disc, data tapes, and the right to reproduce and distribute the article via these data carriers;
- the right to store the manuscript in databases, including online databases, as well as the right to transmit the manuscript in all technical systems and modes;
- the right to make the manuscript available to the public or to closed user groups on individual demand, for use on monitors or other readers (including e-books), and in printable form for the user, either via the Internet, online service, or via internal or external networks.
Authors reserve the copyright to published articles and have the right to use the article in the same manner like third parties in accordance with the licence Attribution-Non-Commercial-Non-Derivate 4.0 International (CC BY). Thereby they must quote the basic bibliographic data of the source article published in the journal (authors, article title, journal title, volume, pagination).
References
Ahmad, M. H., & Ahmed, Q. M. (2014). Does institutional quality matter to attract foreign direct investment? An Empirical Investigation for Pakistan. South Asia Economic Journal, 15(1), 55–70.
Ahmed SF, Islam KMZ, Mohsin AKM, Ai-Jun G, &Hossain SFA. (2023) Relationship between greenfield investment and economic growth: Evidence from Bangladesh. Heliyon. Jun 27;9(7):e17547. doi: 10.1016/j.heliyon. 2023.e17547. PMID: 37449103; PMCID: PMC10336430.
Antonietti, R. &Mondolo, J. (2023). Inward FDI and the quality of domestic institutions: A cross-country panel VAR analysis. Economic Systems. Volume 47, Issue 3, September, 101078.
Ashraf A., & Herzer D. (2014). The effects of Greenfield investment and M&As on domestic investment in developing countries. Appl. Econ. Lett.;21(14):997–1000.
Bayar, Y., (2017). Greenfield and brownfield investments and economic growth: evidence from Central and Eastern European Union countries. Naše gospodarstvo. revija za aktualna gospodarska vprašanja . 2 ol. 63, no. 3, p. 19–26. DOI 10.1515/ngoe-2017-0015.
Bayar, Y., Remeikienė, R., Žufan, J., & Novotný, M. (2020). Unemployment Effects of Greenfield and Brownfield Investments in Post-Transition European Union Members. E&M Economics and Management, 23(2), 4–16. https://doi.org/10.15240/tul/001/2020-2-001.
Buchanan, B. G., Le, Q. V., & Rishi, M. (2012). Foreign direct investment and institutional quality: Some empirical evidence. International Review of Financial Analysis, 21, 81–89.
Daude, C., & Stein, E. (2007). The quality of institutions and foreign direct investment. Economics & Politics, 19(3), 317–344.
Dritsakis, N. &Stamatiou, P. (2018). Causal Nexus between FDI, Exports, Unemployment and Economic Growth for the Old European Union Members. Evidence from Panel Data. International Journal of Economic Sciences, Vol. VII(2), pp. 35-56., 10.20472/ES.2018.7.2.002.
Dunning, J.H. (1993) Multinational Enterprises and the Global Economy. Addison Wesley, New York.
Dunning, J.H. (2000). The eclectic paradigm as an envelope for economic and business theories of MNE activity.International Business Review, 9(2000), pp.163-190.
Economou, F., Hassapis, C., Philippas, N., & Tsionas, M. (2016). Foreign Direct Investmenet Determinants in OECD and Developing Countries. Review of Development Economics, 527-542. https://onlinelibrary.wiley.com/doi/epdf/10.1111/rode.12269Eren, M., & Zhuang, H. (2015). Mergers and acquisitions versus greenfield investment, absorptive capacity, and economic growth: Evidence from 12 new member states of the European Union. Eastern European Economics, 53(2), 99–123.
Engle, R. and Granger, C. (1987) Cointegration and Error Correction: Representation, Estimation and Testing. Econometrica, 55, 251-276.
http://dx.doi.org/10.2307/1913236
Ganić, M. (2021). Emerging Balkans and Its Recent Experience with Transition (Chapter 2) in the book: Financial Globalization in the Emerging Balkans, Palgrave McMillan. https://doi.org/10.1007/978-3-030-65009-4_3.
Ganić, M., (2022). Does institutional quality matter for the idp hypothesis? Evidence from emerging Europe. Croatian Economic Survey. Vol. 24: No. 1: June 2022 : pp. 83-11.
Gopalan, S. Ouyang, A. & Rajan, R.S. (2018). Impact of Greenfield FDI versus M&A on growth and domestic investment in developing Asia. Economic Politics,35(1), pp.41-70
Harms,P.&Méon, P.G. (2018). Good and useless FDI: the growth effects of Greenfield investment and mergers and acquisitions Rev. Int. Econ.,26 (1), pp.37-59.
Hraiba, A. Ganić, M., & Branković, A. (2019). Does The Arab Spring Wave Affect Outward Foreign Direct Investment (Fdi)? Empirical Evidence from The Mideast And North Africa. Ekonomskipregled, 70 (3) 411-430.
Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115, 53–74. doi:10.1016/S0304-4076(03)00092-7
Johansen, S. and Juselius, K. (1990) Maximum Likelihood Estimation and Inference on Cointegration with Applications to the Demand for Money. Oxford Bulletin of Economics and Statistics, 52, 169-210. https://doi.org/10.1111/j.1468-0084.1990.mp52002003.x
Jude C. (2019). Does FDI crowd out domestic investment in transition countries. EconomicTransition InstitutionalChange.;27(1):163–200.
Kandil, M. (2009). Determinants of institutional quality and their impact on economic growth in the MENA region. International Journal of Development Issues, 8(2), 134–167.
Kayani, F. N., & Ganic, M. (2021). The impact of governance on Chinese inward FDI: The generalized method of moments technique. Humanities and Social Sciences Letters, 9(2), 175–184. https://doi.org/10.18488/journal.73.2021.92.175.184
Kaufmann, D. & Kraay, A. &Mastruzzi, M. (2010). The worldwide governance indicators: methodology and analytical issues, Policy Research Working Paper Series 5430, The World Bank.
Kuckertz, A., Berger, E. S., &Mpeqa, A. (2016). The more the merrier? Economic freedom and entrepreneurial activity. Journal of Business Research, 69(4), 1288–1293. https://doi.org/10.1016/j.jbusres.2015.10.094
Levin, A., Lin, C. F., & Chu, C. S. J. (2002). Unit-root test in panel data: asymptotic and finite sample properties. Journal of Econometrics, 108, 1–24. doi:10.1016/S0304-4076(01)00098-7.
Luu, H.N. (2016). Greenfield investments, cross-border M&As, and economic growth in emerging countries Econ. Business Letters, 5(3), pp. 87-94.
Masron, T. A., & Abdullah, H. (2010). Institutional quality as a determinant for FDI inflows: evidence from ASEAN. World Journal of Management, 2(3), 115–128.
Qiu L.D., Wang S. (2011). FDI policy, greenfield investment and cross‐border mergers. Rev. Int. Econ.;19(5):836–851.
Peric, M., &Filipovic, S. (2021). Foreign Direct Investments and Labour Force Indicators in Transition Economies: Linear Mixed-Effects Models Impact Analysis. Sociológia - Slovak Sociological Review, 53(3), 238-265. 0049-1225. DOI: https://doi.org/10.31577/sociologia.2021.53.3.9
Raza, S.&Arif, M. (2019). Relationship Between FDI and Economic Growth in the Presence of Good Governance System: Evidence from OECD Countries. Global Business Review 1–19, DOI: 10.1177/0972150919833484 journals.sagepub.com/home/gbr. UNCTAD. No. 16. Division on Investment and Enterprise; 2014. (Global Investments Trend Monitor).
Wang, M., & Wong, M. C. S. (2009). What drives economic growth? The case of cross-border M&A and Greenfield FDI activities. Kyklos, 62(2), 316–330.
Yerrabati, S. & Hawkes, D.D. (2016).Institutions and Investment in the South and East Asia and Pacific Region: Evidence from MetaAnalysis. Economics. Vol. 10, 2016-11 | May 23, 2016. http://dx.doi.org/10.5018/economics-ejournal.ja.2016-11
Ahmed SF, Islam KMZ, Mohsin AKM, Ai-Jun G, &Hossain SFA. (2023) Relationship between greenfield investment and economic growth: Evidence from Bangladesh. Heliyon. Jun 27;9(7):e17547. doi: 10.1016/j.heliyon. 2023.e17547. PMID: 37449103; PMCID: PMC10336430.
Antonietti, R. &Mondolo, J. (2023). Inward FDI and the quality of domestic institutions: A cross-country panel VAR analysis. Economic Systems. Volume 47, Issue 3, September, 101078.
Ashraf A., & Herzer D. (2014). The effects of Greenfield investment and M&As on domestic investment in developing countries. Appl. Econ. Lett.;21(14):997–1000.
Bayar, Y., (2017). Greenfield and brownfield investments and economic growth: evidence from Central and Eastern European Union countries. Naše gospodarstvo. revija za aktualna gospodarska vprašanja . 2 ol. 63, no. 3, p. 19–26. DOI 10.1515/ngoe-2017-0015.
Bayar, Y., Remeikienė, R., Žufan, J., & Novotný, M. (2020). Unemployment Effects of Greenfield and Brownfield Investments in Post-Transition European Union Members. E&M Economics and Management, 23(2), 4–16. https://doi.org/10.15240/tul/001/2020-2-001.
Buchanan, B. G., Le, Q. V., & Rishi, M. (2012). Foreign direct investment and institutional quality: Some empirical evidence. International Review of Financial Analysis, 21, 81–89.
Daude, C., & Stein, E. (2007). The quality of institutions and foreign direct investment. Economics & Politics, 19(3), 317–344.
Dritsakis, N. &Stamatiou, P. (2018). Causal Nexus between FDI, Exports, Unemployment and Economic Growth for the Old European Union Members. Evidence from Panel Data. International Journal of Economic Sciences, Vol. VII(2), pp. 35-56., 10.20472/ES.2018.7.2.002.
Dunning, J.H. (1993) Multinational Enterprises and the Global Economy. Addison Wesley, New York.
Dunning, J.H. (2000). The eclectic paradigm as an envelope for economic and business theories of MNE activity.International Business Review, 9(2000), pp.163-190.
Economou, F., Hassapis, C., Philippas, N., & Tsionas, M. (2016). Foreign Direct Investmenet Determinants in OECD and Developing Countries. Review of Development Economics, 527-542. https://onlinelibrary.wiley.com/doi/epdf/10.1111/rode.12269Eren, M., & Zhuang, H. (2015). Mergers and acquisitions versus greenfield investment, absorptive capacity, and economic growth: Evidence from 12 new member states of the European Union. Eastern European Economics, 53(2), 99–123.
Engle, R. and Granger, C. (1987) Cointegration and Error Correction: Representation, Estimation and Testing. Econometrica, 55, 251-276.
http://dx.doi.org/10.2307/1913236
Ganić, M. (2021). Emerging Balkans and Its Recent Experience with Transition (Chapter 2) in the book: Financial Globalization in the Emerging Balkans, Palgrave McMillan. https://doi.org/10.1007/978-3-030-65009-4_3.
Ganić, M., (2022). Does institutional quality matter for the idp hypothesis? Evidence from emerging Europe. Croatian Economic Survey. Vol. 24: No. 1: June 2022 : pp. 83-11.
Gopalan, S. Ouyang, A. & Rajan, R.S. (2018). Impact of Greenfield FDI versus M&A on growth and domestic investment in developing Asia. Economic Politics,35(1), pp.41-70
Harms,P.&Méon, P.G. (2018). Good and useless FDI: the growth effects of Greenfield investment and mergers and acquisitions Rev. Int. Econ.,26 (1), pp.37-59.
Hraiba, A. Ganić, M., & Branković, A. (2019). Does The Arab Spring Wave Affect Outward Foreign Direct Investment (Fdi)? Empirical Evidence from The Mideast And North Africa. Ekonomskipregled, 70 (3) 411-430.
Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115, 53–74. doi:10.1016/S0304-4076(03)00092-7
Johansen, S. and Juselius, K. (1990) Maximum Likelihood Estimation and Inference on Cointegration with Applications to the Demand for Money. Oxford Bulletin of Economics and Statistics, 52, 169-210. https://doi.org/10.1111/j.1468-0084.1990.mp52002003.x
Jude C. (2019). Does FDI crowd out domestic investment in transition countries. EconomicTransition InstitutionalChange.;27(1):163–200.
Kandil, M. (2009). Determinants of institutional quality and their impact on economic growth in the MENA region. International Journal of Development Issues, 8(2), 134–167.
Kayani, F. N., & Ganic, M. (2021). The impact of governance on Chinese inward FDI: The generalized method of moments technique. Humanities and Social Sciences Letters, 9(2), 175–184. https://doi.org/10.18488/journal.73.2021.92.175.184
Kaufmann, D. & Kraay, A. &Mastruzzi, M. (2010). The worldwide governance indicators: methodology and analytical issues, Policy Research Working Paper Series 5430, The World Bank.
Kuckertz, A., Berger, E. S., &Mpeqa, A. (2016). The more the merrier? Economic freedom and entrepreneurial activity. Journal of Business Research, 69(4), 1288–1293. https://doi.org/10.1016/j.jbusres.2015.10.094
Levin, A., Lin, C. F., & Chu, C. S. J. (2002). Unit-root test in panel data: asymptotic and finite sample properties. Journal of Econometrics, 108, 1–24. doi:10.1016/S0304-4076(01)00098-7.
Luu, H.N. (2016). Greenfield investments, cross-border M&As, and economic growth in emerging countries Econ. Business Letters, 5(3), pp. 87-94.
Masron, T. A., & Abdullah, H. (2010). Institutional quality as a determinant for FDI inflows: evidence from ASEAN. World Journal of Management, 2(3), 115–128.
Qiu L.D., Wang S. (2011). FDI policy, greenfield investment and cross‐border mergers. Rev. Int. Econ.;19(5):836–851.
Peric, M., &Filipovic, S. (2021). Foreign Direct Investments and Labour Force Indicators in Transition Economies: Linear Mixed-Effects Models Impact Analysis. Sociológia - Slovak Sociological Review, 53(3), 238-265. 0049-1225. DOI: https://doi.org/10.31577/sociologia.2021.53.3.9
Raza, S.&Arif, M. (2019). Relationship Between FDI and Economic Growth in the Presence of Good Governance System: Evidence from OECD Countries. Global Business Review 1–19, DOI: 10.1177/0972150919833484 journals.sagepub.com/home/gbr. UNCTAD. No. 16. Division on Investment and Enterprise; 2014. (Global Investments Trend Monitor).
Wang, M., & Wong, M. C. S. (2009). What drives economic growth? The case of cross-border M&A and Greenfield FDI activities. Kyklos, 62(2), 316–330.
Yerrabati, S. & Hawkes, D.D. (2016).Institutions and Investment in the South and East Asia and Pacific Region: Evidence from MetaAnalysis. Economics. Vol. 10, 2016-11 | May 23, 2016. http://dx.doi.org/10.5018/economics-ejournal.ja.2016-11