Analyzing the relationship between foreign direct investment and privatization in the European Union founder nations by using panel data approach

Abstract

Foreign direct investment (FDI) and privatization are two of the most important components in liberalization World. The aim of this study is to analyze whether there exist a statistically significant relationship between FDI and privatization, or not. To do so, a panel data sample of fourteen European Union (EU) Founder Nations in 1998-2012 was used to estimate various panel data models. The special feature of panel data is that it allows researchers to construct and test more realistic behavioral models that could not be identified using cross-section or time series data alone. Based on the sample results, between privatization as the primary independent variable and FDI was found a statistically significant positive relationship. Although other explanatory variables such as growth, trade openness, and corruption perceptions index, were found to have statistically significant effects on FDI, budget deficit was found to be statistically insignificant. Moreover, statistically significant parameters' signs showed that all of the economic expectations were satisfied.