engleski

Is there a long-term relationship between the stock market and foreign direct investment in Croatia?

Theoretical assumptions about the characteristics of FDI emphasize the stability, long-term motivation and resilience of this form of capital investments during financial crises. On the other hand, stock market and portfolio investments are characterized as short-term, speculative and, thus, prone to quick disinvestment and capital flight. These assumptions have proven to be true in some earlier financial crises. However, in Croatia, FDI inflows decreased considerably during the 2009–2010 period, and contrary to expectations, their movement was similar to the movement of the stock market index (CROBEX). The purpose of this paper is to investigate the existence and characteristics of the possible relationship between the long-term (FDI inflows) and short-term investments (CROBEX) in Croatia. Therefore, the paper empirically examines the existence of the long-term relationship between FDI inflows and CROBEX in Croatia using the Engle- Granger and Johansen cointegration methodology. Johansen test found one cointegrating vector between observed variables. An error correction term (ECT) suggests a 5.48 per cent correction of disequilibrium in each quarter, while other coefficients in VEC model are not statistically significant. Therefore, we conclude that the connection between variables is not particularly strong. However, these results are not in compliance with theoretical assumptions about the differences in the stability of long-term as opposed to short-term investments, and emphasize the need for further reconsiderations of FDI characteristics in Croatia, as well as in other comparable countries

Cointegration; Foreign Direct Investment; Stock Market Index; CROBEX

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