Outward foreign direct investment and the economic growth of Central, East and Southeast Europe: an asymmetric approach

Abstract

PurposePrevious studies have mostly estimated there to be a symmetric effect in the Foreign direct investment (FDI) inflow regarding the economic growth of Central, East and Southeast European (CESEE) countries. However, for the CESEE countries, as well as for the majority of countries around the world, there has been no study that has estimated the symmetric and asymmetric effect of outward FDI on economic growth. The main objective of this study is to estimate whether the relation between outward FDI and economic growth in CESEE countries is symmetric or asymmetric.Design/methodology/approachThis study includes a sample based on eight CESEE countries. The authors used the linear and non-linear autoregressive distributed lag (ARDL) model and annual data for the period from 1990 to 2020.FindingsIn the long run, in the linear ARDL model, a significant symmetrical effect due to OFDI on the economic growth of Romania and Slovenia was found, while in the non-linear ARDL model, a significant asymmetric effect of OFDI on the economic growth of Bulgaria, Poland, Romania, Russia, Slovenia and Slovakia was found. In six out of the eight countries, asymmetry was found while symmetry was found in the other two. Poorer symmetry results can be ascribed to the lack of linear model neglecting the asymmetric behaviour of the positive and negative change decomposition as part of the OFDI movement, which leads to the wrong conclusion.Originality/valueThis is the first study to evaluate the asymmetric effect of outward FDI on the economic growth of eight CESEE countries.