Economic Growth Drivers in Romania: Evidence from a NARDL Analysis

Abstract

The present study examined the impact of foreign direct investment, trade, final consumption expenditures, exports and imports of goods and services on the Romanian economic growth. The study used yearly data ranging from 1990 to 2020, and stationarity was checked using unit root testing. An asymmetric (non-linear autoregressive distributed lag) technique was employed to examine the relationship between variables with the estimation of short-run and long-run analysis. The findings of the short-run analysis show that the variables trade and final consumption expenditures positively impacted the economic growth in Romania through the positive and negative shocks. Further, the evidence also uncovered that foreign direct investment adversely influenced the economic growth, while the variable exports of goods and services revealed a significant influence to economic growth via positive shock. Imports of goods and services exposed a negative association via a positive shock and positive relation via a negative shock to the economic growth. Similarly, the long-run analysis also uncovered that variables trade and final consumption expenditures positively impacted the economic growth in Romania via positive and negative shocks, while the variable foreign direct investment showed negative linkage. Exports of goods and services uncovered a substantial influence on economic growth via positive shock, while imports of goods and services revealed a negative association via positive shock and positive linkage via negative shock to the economic growth. Foreign direct investment and imports of goods and services have a detrimental impact on Romania’s economic growth. In order to execute the right policies to solve trade and foreign investment uncertainties in Romania and boost economic growth, conservative measures are required.