The Shadow Economy, Human Development and Foreign Direct Investment Inflows
Yilmaz Bayar, Rita Remeikiene, Armenia Androniceanu, Ligita Gaspareniene, Ramunas Jucevicius
Keywords:
competitiveness, shadow economy, human development, foreign direct investment inflows, cointegration,
causality analysis
Abstract:
to become an essential player in international economic relations and take a prominent place in
the world market. In this context, foreign direct investment inflows are accepted as a source of
competitiveness through knowledge, know-how and technology transfer, but competitiveness
is also accepted as a significant determinant of foreign direct investment attraction. Therefore,
the specification of foreign direct investment inflow determinants is also important to improve
competitiveness. In this research article, we aim to evaluate the impact of shadow economies and
human development on foreign direct investment inflows as a possible determinant of competitiveness
in 11 post-transition EU members over 1995-2015 period. The methodology employed
in the applied section includes comparative and systematic literature analysis as well as second
generation panel cointegration and causality analyses regarding both cross-sectional dependence
and heterogeneity. The empirical analyses revealed that both the shadow economy and human
development are significant determinants of foreign direct investment inflows. The causality
analysis revealed a mutual interaction between foreign direct investment inflows and human
development for all the countries in the sample, but a two-way causality between the foreign
direct investment inflows and shadow economies only for Bulgaria, Croatia, and Romania and a
one-way causality from shadow economies to the foreign direct investment inflows in the Czech
Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia. The long-run
analysis revealed that shadow economies negatively affected foreign direct investment inflows,
while human development positively affected foreign direct investment inflows.
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 10.7441/joc.2020.01.01
Bayar, Y., Remeikiene, R., Androniceanu, A., Gaspareniene, L., & Jucevicius, R. (2020). The Shadow
Economy, Human Development and Foreign Direct Investment Inflows. Journal of Competitiveness, 12(1),
5–21. https://doi.org/10.7441/joc.2020.01.01
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