Can Chinese Investments Contribute to Accelerating Economic Growth in Europe?
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Abstract
This study investigates the impact of Chinese outward foreign direct
investment (FDI) on the economic growth of 27 European countries from 2004 to
2021, amid concerns about China’s increasing economic influence in Europe. This
study employs systematic econometric methods, including the LLC and IPS tests for
stationarity, Kao and Pedroni cointegration tests, fully modified ordinary least squares
(FMOLS) and dynamic ordinary least squares (DOLS) for long-term effects, and the
ARDL test for short- and long-term effects. The findings further supported by Panel
Granger causality test, one-way and two-way fixed effect models, and dynamic panel
models, suggest a significant positive impact of trade openness and fixed capital on longterm
European economic development. The study also reveals that while Chinese FDI
and trade openness primarily influence economic growth in the long run, fixed capital
has both short and long-term effects. Moreover, a sensitivity analysis of rich and poor
European nations confirms these patterns, emphasising the role of trade openness and
fixed capital in promoting sustainable economic growth. The study suggests a balanced
approach to leveraging FDI, highlighting the importance of policy measures that
encourage trade openness and fixed capital investment to enhance economic development
in Europe.
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