Nexus Between Trade Openness, FDI and Economic Growth in Republic of Macedonia: VECM Approach

International Balkan University, Faculty Of Business and Administrative Sciences, Macedonia
Afrim ALILI, PhD
University Of Tetovo, Faculty Of Economics, Macedonia

Having into consideration therecent awareness of the significant role of trade openness and Foreign Direct Investments on country’s economic growth, main objective of this paper is to analyze this nexus in the case of Republic of Macedonia as a small open economy, covering time spin 2000q1 – 2016q4. Firstly, Augmented Dickey Fuller test is accomplished to test the time series stationarity, while Johansen test for co-integration is conducted for determining the existence of co-integration vector in the model. Finally, VECM it is employed in order to reveal the long-run relationship among FDI, Trade openness and economic growth in the case of Republic of Macedonia. In addition, empirical results of Johansen co-integration test and VECM suggest significant long-run relationship among these variables, thus revealing positive relationship between trade openness and economic growth, while negative among FDI and real GDP. Further, Granger causality test results indicate bidirectional causal relationship between trade openness and real GDP, while in the case of FDI and real GDP is present a unidirectional causality, running from FDI to real GDP.

Keywords: Trade Openness, FDI, Co-Integration, VECM, Granger Causality
JEL Codes: F10, F21, F43

International Conference on International Trade Abstract Book/ editörler Kürşat Çapraz Irina Raluca Badea

İstanbul: Hiperlink Yayınları, 2018.



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