THE IMPACT OF FOREIGN DIRECT INVESTMENTS ON THE ECONOMIC GROWTH OF MACEDONIA

The purpose of this paper is to analyze empirically the effects of foreign direct investment (FDI) on economic growth of the Republic of Macedonia during the period of 1998-2015. By applying the OLS approach, we estimate the regression equation and present the model that explains the relationship between aforementioned variables. As the dependent variable is considered real GDP as representatives of economic growth, and as independent variables besides the variable of FDI, are reviewed a range of other macroeconomic variables like export, import, employment, consumer price index, trade openness and human capital. Also in the model is incorporated an artificial variable (dummy) to explore the effects of the global financial crises into the dynamics of FDI. Besides static models, estimated with the OLS method, it is made a long-term analysis of the linkage between FDI and economic growth, using dynamic VAR model and Granger causality test. The empirical results indicate a positive effect of FDI on economic growth, meaning that the increase of the stock of FDI in Macedonia increases the country real GDP, concluding that FDI has positive impact on economic growth.