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Causal Links between Trade Openness and Foreign Direct Investment in Romania

Author

Listed:
  • Malsha Mayoshi Rathnayaka Mudiyanselage

    (Faculty of Economics Sciences and Business Administration, Transilvania University of Brasov, Universitatii Street, No. 1, Building A, 500068 Brasov, Romania)

  • Gheorghe Epuran

    (Faculty of Economics Sciences and Business Administration, Transilvania University of Brasov, Universitatii Street, No. 1, Building A, 500068 Brasov, Romania)

  • Bianca Tescașiu

    (Faculty of Economics Sciences and Business Administration, Transilvania University of Brasov, Universitatii Street, No. 1, Building A, 500068 Brasov, Romania)

Abstract
In this increasingly globalized era, foreign direct investments are considered to be one of the most important sources of external financing for all countries. This paper investigates the causal relationship between trade openness and foreign direct investment (FDI) inflows in Romania during the period 1997–2019. Throughout this study, Trade Openness is the main independent variable, and Gross Domestic Product (GDP), Real Effective Exchange Rate (EXR), Inflation (INF), and Education (EDU) act as control variables for investigating the relationships between trade openness (TOP) and FDI inflow in Romania. The Auto Regressive Distributed Lag (ARDL) Bounds test procedure was adopted to achieve the above-mentioned objective. Trade openness has negative and statistically significant long-run and short-run relationships with FDI inflows in Romania throughout the period. Trade openness negatively affects the FDI inflow, which suggest that the higher the level of openness is, the less likely it is that FDI will be attracted in the long run. The result of the Granger causality test indicated that Romania has a unidirectional relationship between trade openness and FDI. It also showed that the direction of causality ran from FDI to trade openness.

Suggested Citation

  • Malsha Mayoshi Rathnayaka Mudiyanselage & Gheorghe Epuran & Bianca Tescașiu, 2021. "Causal Links between Trade Openness and Foreign Direct Investment in Romania," JRFM, MDPI, vol. 14(3), pages 1-18, February.
    • Handle: RePEc:gam:jjrfmx:v:14:y:2021:i:3:p:90-:d:504842
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    References listed on IDEAS

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    Cited by:

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    5. Ion Panescu & Nicoleta-Elena Cristea, 2024. "An Analysis Of Trade Balance And Main Activities Of Romanian Subsidiaries Of Transnational Companies During The Period 2014-2022," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 2, pages 169-178, April.
    6. Al Amin Biswas & A. H. M. Shahriar & Mohammad Jahangir Alam & Ruhul Kuddus & Uttam Golder & Mita Rani Paul, 2023. "Rethinking FDI Policy in Bangladesh: An Asymmetric Approach to Globalization, Population, and Trade," International Journal of Economics and Financial Issues, Econjournals, vol. 13(6), pages 168-176, November.
    7. Abdulrahman A. Albahouth & Muhammad Tahir, 2024. "The Relationship between Trade Openness and FDI Inflows: Evidence-Based Insights from ASEAN Region," Economies, MDPI, vol. 12(8), pages 1-19, August.
    8. Ayoub Bendriouch & Kamil Uslu, 2023. "Comparative Analysis of the Determinants of Foreign Direct Investments in Morocco and Turkiye," Business and Economic Research, Macrothink Institute, vol. 13(1), pages 36-56, December.
    9. Cheche Duan & Yicheng Zhou & Dehong Shen & Shengqiao Lin & Wei Gong & József Popp & Judit Oláh, 2021. "The Misunderstanding of China’s Investment, and a Clarification: “Faustian Bargain” or “Good Bargain”? On the OFDI Data of Central and Eastern Europe," Sustainability, MDPI, vol. 13(18), pages 1-25, September.
    10. Muhammed Sehid Gorus & Veli Yilanci & Maxwell Kongkuah, 2023. "FDI Inflows-Economic Globalization Nexus in ASEAN Countries: The Panel Bootstrap Causality Test Based on Wavelet Decomposition," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(2), pages 339-362, June.
    11. Fedaa Abd Almajid Sabbar Alaraji & Vochita Luminita & Latea Gabriela Mihaela, 2022. "Analysis Of The Environment And The Legal-Institutional Framework Of Foreign Direct Investments In Romania," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 4, pages 185-194, August.
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