TRADE OPENNESS, INVESTMENT FREEDOM- SELECTED COUNTRY RISK INDICATORS, IMPACT ON FOREIGN DIRECT INVESTMENTS, A PANEL VECTOR AUTOREGRESSION MODEL APPROACH

Abstract

We employ a panel vector autoregression model (PVAR) selecting as endogenous variables Foreign Direct Investments percent of GDP, Trade Openness and Investment Freedom for a database comprised of European Countries. The data are collected from the Global Economy database. We compare different PVAR models changing the input of desired lags. We test the Hansen test for over-identifying restrictions and we generate the Generalised impulse response functions. The article uses a Hahn Kuehrsteiner Panel Var estimation estimating a stationarity PVAR with fixed effects. Econometric analysis shows a significant impact of trade openness and investment freedom indicators on foreign direct investment in Europe.