Citation:

Egis Zaimaj, Viola Xhafa. "A GMM Application to FDI inflows Case of EU and non-EU Member States in the Balkans" International Research Journal of Economics and Management Studies, Vol. 3, No. 2, pp. 153-160, 2024.

Abstract:

Foreign direct investments are extensively studied under the scope of international finance since they are thought to be important drivers of growth, especially in developing countries. Given the technological innovation they bring to the host economies, job creation opportunities, increased competition, and capacity building, inward FDI is expected to positively contribute to economic development. In this paper, a random sample of Balkan countries is selected to investigate the main financial variables that steer FDI and to shed light on the potential endogeneity of GDP. To answer the research objective, secondary data is collected over a 10-year time frame, 2012-2021, for the following countries: Greece, Albania, Romania, Bosnia and Herzegovina, and the Republic of North Macedonia. The dependent variable, FDI inflows, is regressed on a set of three independent financial variables and two dummies: EU membership and COVID-19. One aim is to check whether EU membership affects a country’s attractiveness to foreign investors. It would also be useful to see if COVID-19, a pandemic which brought a toll on the global economic climate, had any impact on investors’ decisions. The empirical analysis relied upon GMM estimation, thus testing both the endogeneity and dynamism. Results showed that real GDP per capita exerts a positive impact on FDI, but in turn, FDI does shape real GDP per capita as well. Real interest rates proved to be statistically significant in explaining the variability in FDI. At the same time, the financial development index turned out to have no impact regardless of the chosen significance level. When comparing EU vs. non-EU Balkan countries, it was seen that no differences could be spotted. The last dummy, Covid-19, resulted in a significant impact on FDI. This study's findings could interest investors, governments, managers, and other stakeholders.

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Keywords:

EU, Financial Variables, FDI Inflows, GDP, GMM.