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

Abstract

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.