Causality between foreign direct investment in the automotive sector and export performance of Macedonian economy

Abstract

Research background: Foreign direct investment is perceived as a valuable tool for economic growth. The growth could be realized more or less as a set of benefits depending on the FDIs features. In the period from 2009 to 2016 a remarkable increase in the share of FDIs inflow in automotive sector in Macedonian economy was noticed, from 2.8% to 14.1%. Thus, there seem to be good reasons to examine the issue of how the increased FDI inflow expressed through the remarkable in-crease of FDIs inflow in the automotive sector.

Purpose of the article: The aim of the paper is to analyze the causality between the increased FDIs inflow in the automotive industry and a remarkable export growth. The research interest of the study is to recognize the importance of the FDIs inflow structure as a determinant of the export structure.

Methods: Within the paper a model is developed that identifies the FDIs as a factor of growth of the export performances. A regression analysis is used to examine the correlation between the FDIs inflow and export. In order to examine causality, the Granger causality test is applied between the FDIs inflow and increased export.

Findings & Value added: The results suggest that FDIs create a good basis for quantitative and qualitative shift in the export structure of the Macedonian economy. The paper associates growth of sectoral export with the growth of FDIs in that sector. Due to the increased FDI inflow in the automotive industry, this sector has significantly increased its share in the total Macedonian export. The paper indicates that FDIs can be considered as a way of engagement in the global supplying chains, which additionally influences positively the competitiveness and export performance of the host suppliers.

Keywords

FDI, automotive industry, export, causality

References

1. Akaike, H. (1998). Information theory and an extension of the maximum likelihood principle. In E. Parzen, K. Tanabe & G. Kitagawa (Eds.). Selected papers of Hirotugu Akaike. Springer series in statistics (Perspectives in statistics). New York: Springer. doi: 10.1007/978-1-4612-1694-0_15. DOI: https://doi.org/10.1007/978-1-4612-1694-0_15
   View in Google Scholar
2. Baldwin, R. (2012). Global supply chains: why they emerged, why they matter and where they are going. The Graduate Institute Geneva CTEI Working papers, 13. DOI: https://doi.org/10.30875/3c1b338a-en
   View in Google Scholar
3. Baldwin, R. (2011b). Trade and industrialization after globalization’s 2nd unbundling: How building and joining a supply chain are different and why it matters. NBER Working Paper, 17716. DOI: https://doi.org/10.3386/w17716
   View in Google Scholar
4. Baliamoune-Lutz, M. N. (2004). Does FDI contribute to economic growth? Knowledge about the effects of FDI improves negotiating positions and reduces risk for firms investing in developing countries. Business Economics, 39(2).
   View in Google Scholar
5. Bandelj, N. (2010). How EU integration and legacies mattered for foreign direct investment into Central and Eastern Europe. Europe-Asia Studies, 62(3). doi:10.1080/09668131003647846. DOI: https://doi.org/10.1080/09668131003647846
   View in Google Scholar
6. Christodoulakis, N., & Sarantides, V. (2011). External asymmetries in the euro area and the role of foreign direct investment. Bank of Greece Working Paper, 132. DOI: https://doi.org/10.2139/ssrn.4172136
   View in Google Scholar
7. Damijan, J., Kostevec, C., & Rojec, M. (2013). Global supply chains at work in Central and Eastern European countries: impact of FDI on export restructuring and productivity growth. SSRN Electronic Journal. doi: 10.2139/ssrn.2287550. DOI: https://doi.org/10.2139/ssrn.2287550
   View in Google Scholar
8. Damijan, J., Rojec, M., & Ferjancic, M. (2011). The growing performance of transition economies: EU market access versus supply capacity factors. Panoeconomicus, 58(4). doi: 10.2298/PAN1104489D. DOI: https://doi.org/10.2298/PAN1104489D
   View in Google Scholar
9. Dritsaki, M., Dritsaki, C., & Adamopoulos, A. (2004). A causal relationship be-tween trade, foreign direct investment and economic growth in Greece. American Journal of Applied Sciences, 1(3). DOI: https://doi.org/10.3844/ajassp.2004.230.235
   View in Google Scholar
10. Ekanayake, E. M., Richard, V., & Veeramacheneni, B. (2003). Openness and economic growth: empirical evidence on the relationship between output, inward FDI and trade. Journal of Business Strategies, 20(1). DOI: https://doi.org/10.54155/jbs.20.1.59-72
    View in Google Scholar
11. Granger, C. W. J. (2003). Some aspects of causal relationship. Journal of Econometrics, 112(1). doi: 10.1016/S0304-4076(02)00148-3. DOI: https://doi.org/10.1016/S0304-4076(02)00148-3
    View in Google Scholar
12. Greenaway, D., Sousa, N., & Wakelin, K. (2001). Do domestic firms learn to export from multinationals? Research on Globalization and economic policy (GEP). University of Nottingham.
    View in Google Scholar
13. Gujarati, N. D. (2003). Basic of econometrics. McGraw-Hill Companies.
    View in Google Scholar
14. Henn, C., Papageorgiou, C., & Spatafora, N. (2015). Export quality in advanced and developing economies: evidence from a new dataset. WTO Working Paper ERSD, 2. Retrieved from https://www.wto.org/english/res_e/reser_ e/ersd201502_e.pdf.
    View in Google Scholar
15. IMF (2015). The former Yugoslav Republic of Macedonia. IMF Country Report, 15. DOI: https://doi.org/10.5089/9781513551395.002
    View in Google Scholar
16. Jindra, B., Giroud, A., & Scott-Kennel, J. (2009). Subsidiary roles, vertical linkages and economic development: lessons from transition economies. Journal of World Business, 44(2). doi: 10.1016/j.jwb.2008.05.006. DOI: https://doi.org/10.1016/j.jwb.2008.05.006
    View in Google Scholar
17. Khan, K., & Leng, K. (1997). Foreign direct investment, exports and economic growth. Singapore Economic Review, 42(2).
    View in Google Scholar
18. Kutan, A., & Vukšić, G. (2007). Foreign direct investment and export performance: empirical evidence. Comparative Economic Studies, 49(3). doi:10.1057/palgrave.ces.8100216. DOI: https://doi.org/10.1057/palgrave.ces.8100216
    View in Google Scholar
19. Lipsey, E. R. (2006). Measuring the impacts of FDI in Central and Eastern Europe. Retrieved from http://www.nber.org/papers/w12808. DOI: https://doi.org/10.3386/w12808
    View in Google Scholar
20. Liu, X., Wang, C., & Wei, Y. (2001). Causal links between foreign direct investment and trade in China. China Economic Review, 12. DOI: https://doi.org/10.1016/S1043-951X(01)00050-5
    View in Google Scholar
21. Mahmoodi, M., & Mahmoodi, E. (2016). Foreign direct investment, exports and economic growth: evidence from two panels of developing countries. Journal Economic Research-Ekonomska Istraživanja, 29. doi: 10.1080/1331677x. 2016.1164922. DOI: https://doi.org/10.1080/1331677X.2016.1164922
    View in Google Scholar
22. Moran, T. (2005). How does FDI affect host country development? Using industry case studies to make reliable generalization. Does foreign direct investment promote development. Washington DC: Institute for International Economics. Center for Global Development.
    View in Google Scholar
23. Pavlinek, P. (2015). Foreign direct investment and the development of the automotive industry in central and eastern Europe. In Foreign investment in eastern and southern Europe after 2008: Still a lever of growth?. Brussels: ETUI.
    View in Google Scholar
24. Pavlinek, P., & Zizalova, P. (2014). Linkages and spillovers in global production networks: firm-level analysis of the Czech automotive industry. Journal of Economic Geography, 1(33). doi:10.1093/jeg/lbu041. DOI: https://doi.org/10.1093/jeg/lbu041
    View in Google Scholar
25. Pacheco-Lopéz, P. (2004). Foreign direct investment, exports and imports in Mexico. Proceedings of the University of Kent Studies in Economics, 0404.
    View in Google Scholar
26. Radulescu, M., & Serbanescu, L. (2012). The impact of FDIs on exports and ex-port competitiveness in Central and Eastern European countries. Journal of Knowledge Management, Economics and Information Technology, 8.
    View in Google Scholar
27. Shaukat, A., & Wei, G. (2005). Determinants of FDI in China. Journal of Global Business and Technology, 1(2).
    View in Google Scholar
28. Statistical State Office (2017). New release: external trade. No: 7.1.17.02 Retrieved from http://www.stat.gov.mk/pdf/2017/7.1.17.02.pdf.
    View in Google Scholar
29. UNCTAD (2012). Trade and development report: policies for inclusive and balanced growth. New York and Geneva.
    View in Google Scholar
30. UNCTAD (2005). Developing countries in international trade 2005: trade and development index. New York and Geneva.
    View in Google Scholar
31. Wach, K., & Wojciechowski. L. (2016). Inward FDI and entrepreneurship rate: empirical evidence on selected effects of FDI in Visegrad countries. Journal of Economics and Management, 24(2). doi: 10.22367/jem.2016.24.04. DOI: https://doi.org/10.22367/jem.2016.24.04
    View in Google Scholar
32. Zhang, K. H. (2006). FDI and host countries’ exports: the case of China. International economics, 59(1).
    View in Google Scholar
33. Zhang, K. H. (2001). How does FDI affect a host country’s export performance? The case of China. Economics of Transition, 9(3). DOI: https://doi.org/10.1111/1468-0351.00095
    View in Google Scholar
34. Zhang, Q., & Felmingham, B. (2001). The relationship between inward direct foreign investment and China’s provincial export trade. China Economic Re-view, 12. DOI: https://doi.org/10.1016/S1043-951X(01)00044-X
    View in Google Scholar
35. Zysk, W., & Śmiech, S. (2014). The influence of foreign direct investment on foreign trade in the Visegrad countries from 2001 to 2011. Entrepreneurial Business and Economics Review, 2(3). doi:10.15678/EBER.2014.020302. DOI: https://doi.org/10.15678/EBER.2014.020302
    View in Google Scholar