Foreign direct investment and shadow economy: One-way effect or multiple-way causality?

Abstract

The article examines the relationship between the size of the shadow economy and indicators of the investment market development. Net inflow of foreign direct investments, volume of net investments in non-financial assets, volumes of portfolio investments, and net outflow of foreign direct investment were used as parameters characterizing the development of the investment market. The dependence between the indicators was analyzed using the regression equation, Shapiro-Wilk test. Research results demonstrate that the increase in the inflow and outflow of foreign direct investments leads to an increase in the size of the shadow economy without a time lag in Ukraine, Poland, Slovenia, Romania, Croatia, Lithuania, Latvia, Estonia, and with a time lag of 1 year in Slovakia and Hungary. The largest impact on the size of the shadow economy is made by the volume of inflow and outflow of direct foreign investments, while the volume of portfolio investments has a less significant effect. Consequently, it was concluded that the processes of inflow and outflow of direct foreign investments require enhanced control by specialized state executive bodies given the scale of their potential destabilizing impact on the macroeconomic stability of the country.

Central bank independence as a prerequisite for ensuring price stability: Modeling the role of the national pattern

“…Price stability is one of the most important macroeconomic factors ensuring the economic growth of countries (Sinaga, 2022;Rizk, 2022). On the other hand, price stability is considered one of the key factors in ensuring macroeconomic stability (Kashcha & Dun, 2022), the growth of credit and investment activity (Olonila et al, 2023), the inflow of foreign direct investments (Tahat, 2022;Tiutiunyk et al, 2022), and currency market development (Kuznyetsova et al, 2017b). Ensuring price stability is the most important function of central banks, which becomes especially important in the context of ensuring the independence of central banks, since the priority of this function established by the provisions of national and international legislation is considered one of the criteria for observing the independence of central banks.…”