The impact of FDI on economic growth in Eurozone countries

The purpose of the study is twofold: Firstly, to analyze the relationship between the foreign direct investments and economic growth and secondly, to estimate the effect of foreign direct investments on economic growth in the Eurozone countries over the period of 2002-2012. The paper employs panel data estimations to test the relationship between the variables. The empirical analysis reveals that there is a positive long-run cointegrating relationship between FDI stock and economic growth. By using the Fully Modified OLS (FMOLS) and Dynamic OLS (DOLS) methods the elasticity of GDP with respect to FDI is 0.054% and 0.147%, respectively. The results also indicate that the stock of foreign direct investment is a significant factor that positively affects economic growth in the Eurozone countries.