The Impact of Foreign Direct Investment from the Nordic Countries on the Structure of Lithuania’s Economy

doi:10.21272/mmi.2023.4-08

The Impact of Foreign Direct Investment from the Nordic Countries on the Structure of Lithuania’s Economy

Manuela Tvaronaviciene^1,2,3,*, Agne Simelyte^1,2,, Gerda Stirblyte^1,

Vilnius Gediminas Technical University (VILNIUS TECH), Lithuania
General Jonas Zemaitis Military Academy of Lithuania, Lithuania
Institute Humanities & Social Sciences, Daugavpils University, Latvia

* Corresponding author

DOI: https://doi.org/10.21272/mmi.2023.4-08

Pages: 112-127

Received: 21 August 2023

Revised: 25 October 2023

Accepted: 07 November 2023

Abstract

Foreign direct investment is considered a driving force for economic growth, boosting trade and reducing unemployment. The recipient country benefits from technology transfer. The host economy develops and changes its economic structure. The Baltic states, including Lithuania, attracted high volumes of Nordic FDI. The aim of the study is to evaluate the impact of inwards Nordic FDI on the economic structure of Lithuania. The research employed descriptive statistics, correlation regression and the Granger causality test. The stationarity of the data was checked by the augmented Dickey–Fuller test to evaluate the impact on the structural changes. The sectors were divided into primary, secondary and tertiary. The data have been structured according to the economic activities corresponding to the Nomenclature statistique des activités économiques dans la Communauté européenne (NACE) classification of economic activities in the European Union. The primary sector includes agriculture, forestry and mining. The secondary factors included manufacturing, construction, water and electricity supply, tertiary cover services and trade. Furthermore, for our research, we chose GDP per capita and gross value added (GVA). The GVA was chosen to evaluate the impact of each Nordic country’s FDI on different sectors. The sectoral contribution to the economy is expressed as GVA. This research was performed from three perspectives. The first is focused on the analysis of the flows and distribution of FDI in Lithuania by economic sector in the Nordic countries. Furthermore, we have analysed the impact of foreign direct investment in the Nordic countries on Lithuania’s economic growth. The final subsection is devoted to estimating the causal link between the distribution of FDI by economic sector in the Nordic European countries and the causal link between economic indicators in these sectors. Our study contributes to internationalization theory by extending it from a sectoral angle. In particular, the need to understand the impact of FDI from a single country on the host economy and its economic structure should be emphasized. We claim that inwards FDI might change the economic structure of the host economy in a positive or negative way. In addition, FDI should contribute to the economic advancement of host countries, which means that the tertiary sector should expand. The results of our study might be useful for improving FDI promotion policy in Lithuania while seeking long-term results in the expansion of the tertiary sector, especially knowledge-intensive activities. Main conclusion. We can conclude that Lithuania has the potential to benefit from inwards Nordic FDI; however, it still does not take all the advantages of these opportunities, as some FDI has no impact on the expansion of the tertiary sector or any sector at all.

Keywords: economic growth; economic structure; Granger causality test; inwards FDI; Lithuania; Nordic FDI; primary sector; secondary sector; tertiary sector.

How to Cite: Tvaronaviciene, M., Simelyte, A., & Stirblyte, G. (2023). The Impact of Foreign Direct Investment from the Nordic Countries on the Structure of Lithuania’s Economy. Marketing and Management of Innovations, 14(4), 112–127. https://doi.org/10.21272/mmi.2023.4-08

Abstract Views

PDF Downloads

This work is licensed under a Creative Commons Attribution 4.0 International License

References

Abdullah, M., & Chowdhury, M. (2020). Foreign direct investment and total factor productivity: any nexus?. Margin: The Journal of Applied Economic Research, 14(2), 164-190. [Google Scholar] [CrossRef]

Alkhazali, Z., Al-Daoud, K., Alshamayleh, H., & Aledeinat, M. (2021). High performance work system and sustainable development among Jordanian SMEs: knowledge sharing as a moderator. Entrepreneurship and Sustainability Issues, 8(4), 280-290.[Google Scholar] [CrossRef]

Amdam, R. P., Lunnan, R., & Ramanauskas, G. (2007). FDI and the transformation from industry to service society in emerging economies: A Lithuanian-Nordic perspective. Engineering Economics, 51(1). [Google Scholar]

Banno, M., & Redondi, R. (2014). Air connectivity and foreign direct investments: economic effects of the introduction of new routes. European Transport Research Review, 6, 355-363. [Google Scholar] [CrossRef]

Bezuidenhout, H., & Pietersen, P. (2015). South African IPAs attracting FDI: investment promotion strategies. Journal of Applied Business Research (JABR), 31(3), 1057-1072. [Google Scholar] [CrossRef]

Borsos, J., & Erkkilä, M. (1995). Foreign Direct Investment and Trade Flows between the Nordic Countries and The Baltic States (No. 540). The Research Institute of the Finnish Economy. [Google Scholar]

Burinskas, A., Holmen, R. B., Tvaronaviciene, M., Šimelyte, A., & Razminiene, K. (2021). FDI, technology & knowledge transfer from Nordic to Baltic countries. Insights into regional development, 3(3), 31-55. [Google Scholar] [CrossRef]

Chapcakova, A., Heckova, J., Gombar, M., Gavura, S., & Kascakova, D. R. (2022). An analysis of the impact of selected predictors for cross-border M&A activity within the European area. Entrepreneurship and Sustainability Issues, 10(2), 176. [Google Scholar] [CrossRef]

Chaudhury, S., Nanda, N., & Tyagi, B. (2020). Impact of FDI on economic growth in South Asia: Does nature of FDI matters?. Review of Market Integration, 12(1-2), 51-69. [Google Scholar] [CrossRef]

Chen, J., & Zhou, Z. (2023). The effects of FDI on innovative entrepreneurship: A regional-level study. Technological Forecasting and Social Change, 186, 122159. [Google Scholar] [CrossRef]

Cieślik, A., & Gurshev, O. (2021). Factor endowments, economic integration, round-tripping, and inwards FDI: Evidence from the Baltic economies. Journal of Risk and Financial Management, 14(8), 348. [Google Scholar] [CrossRef]

Dudzeviciūte, G., Šimelyte, A., & Giedraityte, V. (2021). Export–Economic Growth Nexus in the World Regions: Directions of Public Policy. Public Policy and Administration, 20(1), 98-107. [Google Scholar] [CrossRef]

Duodu, E., Oteng-Abayie, E. F., Frimpong, P. B., & Takyi, P. O. (2022). The impact of the Compact with Africa initiative on foreign direct investments and environmental pollution. Management of Environmental Quality: An International Journal, 33(6), 1457-1475. [Google Scholar] [CrossRef]

Elekes, Z., Boschma, R., & Lengyel, B. (2019). Foreign-owned firms as agents of structural change in regions. Regional Studies, 53(11), 1603-1613. [Google Scholar] [CrossRef]

Emako, E., Nuru, S., & Menza, M. (2022). The effect of foreign direct investment on structural transformation in developing countries. Cogent Economics & Finance, 10(1), 2125658. [Google Scholar] [CrossRef]

Gochero, P., & Boopen, S. (2020). The effect of mining foreign direct investment inflow on the economic growth of Zimbabwe. Journal of Economic Structures, 9(1), 1-17. [Google Scholar] [CrossRef]

Gombar, M., Sira, E., Heckova, J., Pisar, O., Chapcakova, A., & Kascakova, D. R. (2022). Cross-border mergers and acquisitions in manufacturing sector in the European area. Entrepreneurship and Sustainability Issues, 10(2), 115. [Google Scholar] [CrossRef]

Govori, F., & Fejzullahu, A. (2020). The impact of foreign direct investment by economic activity on gross domestic product growth in Kosovo. Academic Journal of Interdisciplinary Studies, 9(6), 78-78. [Google Scholar] [CrossRef]

Hauge, J. (2019). Should the African lion learn from the Asian tigers? A comparative-historical study of FDI-oriented industrial policy in Ethiopia, South Korea and Taiwan. Third World Quarterly, 40(11), 2071-2091. [Google Scholar] [CrossRef]

Heckova, J., Birknerova, Z., Chapcakova, A., Zbihlejova, L., & Stolarik, P. (2022). Design and verification of implementation factors of cross-border mergers and acquisitions projects. Entrepreneurship and Sustainability Issues, 10(2), 147. [Google Scholar][CrossRef]

Hlavacek, P., & Bal-Domanska, B. (2016). Impact of foreign direct investment on economic growth in Central and Eastern European countries. Engineering Economics, 27(3), 294-303. [Google Scholar] [CrossRef]

Hobbs, S., Paparas, D., & E. AboElsoud, M. (2021). Does foreign direct investment and trade promote economic growth? Evidence from Albania. Economies, 9(1), 1. [Google Scholar] [CrossRef]

Huynh, C. M. (2021). Foreign direct investment and income inequality: Does institutional quality matter?. The Journal of International Trade & Economic Development, 30(8), 1231-1243. [Google Scholar] [CrossRef]

Hunya, G. (2004). FDI in small accession countries: the Baltic states. EIB papers, 9(2), 92-115. [Google Scholar]

Inada, M. (2022). Promotion or liberalization: The effect of targeted investment policies on foreign direct investment inflows. Pacific Economic Review, 27(5), 489-505. [Google Scholar] [CrossRef]

Irandoust, M. (2016). Structural changes, FDI, and economic growth: evidence from the Baltic states. Journal of Economic Structures, 5(1), 1-9. [Google Scholar] [CrossRef]

Javorcik, B. S. (2004). Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backwards linkages. American economic review, 94(3), 605-627. [Google Scholar] [CrossRef]

Lietuvos statistikos departamentas. (2019). Lietuvos statistikos metraštis 2019. Lietuvos statistikos departamentas. [Link]

Makieła, K., Wojciechowski, L., & Wach, K. (2021). Effectiveness of FDI, technological gap and sectoral level productivity in the Visegrad Group. Technological and Economic Development of Economy, 27(1), 149-174. [Google Scholar] [CrossRef]

Makin, A. J., & Chai, A. (2018). Prioritizing foreign investment in APEC. Global Economy Journal, 18(3), 20180025. [Google Scholar] [CrossRef]

Maalej, A. (2022). The role of entrepreneurship and innovation in the environmental and economic dimensions of growth. Insights into Regional Development, 4(2), 85-95. [Google Scholar] [CrossRef]

Mamba, E., Gniniguè, M., & Ali, E. (2020). Effect of foreign direct investment on structural transformation in West African Economic and Monetary Union (WAEMU) countries. Cogent Economics & Finance, 8(1), 1783910. [Google Scholar] [CrossRef]

Mehmood, F., Atique, M., Bing, W., Khan, H., & Henna, H. (2021). Infrastructure and sectoral FDI in China: an empirical analysis. Insights into Regional Development, 3(2), 160-175. [Google Scholar] [CrossRef]

Mensah, I., & Mensah, E. K. (2021). The impact of inwards FDI on output growth volatility: A country-sector analysis. Research in Globalization, 3, 100063. [Google Scholar] [CrossRef]

Oficialiosios statistikos portalas. (2019). Tiesiogines Užsienio Investicijos. [Link]

Okechukwu, O. G., De Vita, G., & Luo, Y. (2018). The impact of FDI on Nigeria’s export performance: a sectoral analysis. Journal of Economic Studies, 45(5), 1088-1103. [Google Scholar] [CrossRef]

Owusu-Nantwi, V. (2019). Foreign direct investment and institutional quality: empirical evidence from South America. Journal of Economic and Administrative Sciences, 35(2), 66-78. [Google Scholar] [CrossRef]

Prah, D. (2019). Foreign direct investment (FDI) inflows in Ghana: Sectorial impact on economic growth (GDP). International Journal of Science and Research, 8(1), 949-955. [Google Scholar] [CrossRef]

Rugman, A. M., & Verbeke, A. (2004). A perspective on regional and global strategies of multinational enterprises. Journal of international business studies, 35, 3-18. [Google Scholar] [CrossRef]

Sahu, P., & Gartia, R. (2022). Sectorwise gross value added (GVA) in Odisha: A statistical analysis. International Journal of Statistics and Applied Mathematics, 7(4), 128–135. [Google Scholar]

Samborskyi, O., Isai, O., Hnatenko, I., Parkhomenko, O., Rubezhanska, V., & Yershova, O. (2020). Retracted: Modelling of foreign direct investment impact on economic growth in a free market. Accounting, 6(5), 705-712. [Google Scholar] [CrossRef]

Saucedo, E., Ozuna, T., & Zamora, H. (2020). The effect of FDI on low and high-skilled employment and wages in Mexico: a study for the manufacture and service sectors. Journal for Labour Market Research, 54(1), 1-15. [Google Scholar] [CrossRef]

Setyanti, A. M., & Wahyudi, S. T. (2021). Foreign Direct Investment and Youth Employment Causality: Evidence From ASEAN-5 Countries. Jurnal Economia, 17(2), 208-219. [Google Scholar] [CrossRef]

Shah, S. H., & Raza, S. A. (2022). The Impact of Services FDI on Services Exports in NICs. Economic Papers: A journal of applied economics and policy, 41(2), 176-181. [Google Scholar] [CrossRef]

Siddiqui, A. A., & Parikh, D. (2018). Comparative analysis of impact of foreign direct investment, exports and employment on growth of manufacturing industries in India. Asian Economic and Financial Review, 8(9), 1196-1210. [Google Scholar] [CrossRef]

Simelyte, A., Dudzeviciute, G., & Liucvaitiene, A. (2017). Scandinavian foreign direct investment and economic growth of the Baltic States. European Journal of Sustainable Development, 6(3), 105-105. [Google Scholar] [CrossRef]

Sucubasi, B., Trenovski, B., Imeri, B., & Merdzan, G. (2021). The Effects of FDI on Domestic Investments in Western Balkans. SHS Web of Conferences, 92, 07059. [CrossRef]

Sugiharti, L., Yasin, M. Z., Purwono, R., Esquivias, M. A., & Pane, D. (2022). The FDI spillover effect on the efficiency and productivity of manufacturing firms: Its implication on open innovation. Journal of Open Innovation: Technology, Market, and Complexity, 8(2), 99. [Google Scholar] [CrossRef]

Sujit, K. S., Kumar, B. R., & Oberoi, S. S. (2020). Impact of Macroeconomic, Governance and risk factors on FDI Intensity—An empirical analysis. Journal of Risk and Financial Management, 13(12), 304. [Google Scholar] [CrossRef]

Sun, Y., Zhang, K., & Zhang, S. (2023). The impact of Chinese Outwards Foreign Direct Investment on the comparative advantage of the Belt and Road countries. Journal of the Asia Pacific Economy, 28(3), 1251-1285. [Google Scholar] [CrossRef]

Tanaya, O., & Suyanto, S. (2022). The causal nexus between foreign direct investment and economic growth in Indonesia: An autoregressive distributed lag bounds testing approach. Periodica Polytechnica Social and Management Sciences, 30(1), 57-69. [Google Scholar] [CrossRef]

Tancošova, J. (2019). The role of foreign direct investment in the economy of Slovakia. Entrepreneurship and Sustainability Issues, 6(4), 2127. [Google Scholar] [CrossRef]

Tang, S., Selvanathan, E. A., & Selvanathan, S. (2008). Foreign direct investment, domestic investment and economic growth in China: A time series analysis. World Economy, 31(10), 1292-1309. [Google Scholar] [CrossRef]

Thirion, J. M. (2020). FDI, regional development and structural change. The case of three states in El Bajío, Mexico. Analisis Economico, 35(90), 199–220. [Google Scholar]

Šimelyte, A., & Tvaronaviciene, M. (2023, April). The impact of Nordic foreign direct investment on innovation and knowledge transfer in the Baltic countries. In 13th International Scientific Conference “Business and Management 2023“. [Google Scholar][CrossRef]

Vozarova, I. K., Kosikova, M., Heckova, J., Chapcakova, A., & Fulajtarova, M. (2022). The impact of GDP on M&A volume in the European area in the context of the consolidation of the banking market. Entrepreneurship and Sustainability Issues, 10(2), 207.[Google Scholar] [CrossRef]

Wang, W., Xu, T., Liu, X., & Sun, Y. (2023). FDI inflows and income inequality: A Schumpeterian economic growth. International Review of Economics & Finance, 83, 805-820. [Google Scholar] [CrossRef]

Wang, X., Xu, Z., Qin, Y., & Skare, M. (2022). Foreign direct investment and economic growth: a dynamic study of measurement approaches and results. Economic research-Ekonomska istraživanja, 35(1), 1011-1034. [Google Scholar] [CrossRef]

Wei, Z. (2020). The impact of FDI on environmental technology innovation from the perspective of environmental regulation. In E3S Web of Conferences (Vol. 206). EDP Sciences. [Google Scholar] [CrossRef]

World Intellectual Property Organization. (2023). [Link]

Yakubu, I. N. (2020). Institutional quality and foreign direct investment in Ghana: A bounds-testing cointegration approach. Review of International Business and Strategy, 30(1), 109-122. [Google Scholar] [CrossRef]

View articles in other formats