Inward FDI and Economic Growth in Bulgaria

Inward foreign direct investment (FDI) plays a critical role in stimulating economic growth, serving as a key catalyst in the development of emerging economies.This study investigates the impact of inward FDI on the economic growth of Bulgaria, an emerging economy in Eastern Europe.Utilizing annual time series data from 1991 to 2022, we analyze the relationship between GDP per capita growth and explanatory variables, including inward FDI and employment.The study employs the Autoregressive Distributed Lag (ARDL) bounds test for cointegration to examine the long-run relationship between these variables.The empirical results confirm a significant positive impact of inward FDI on Bulgaria's economic growth, with a robust long-term equilibrium established among the variables.Additionally, the findings reveal a unidirectional causality from FDI to employment, indicating that FDI inflows have contributed to job creation in Bulgaria.The study underscores the critical role of FDI as a catalyst for economic development in Bulgaria, particularly during its transition from a centrally planned to a market-oriented economy and its subsequent integration into the European Union.However, it also highlights the importance of enhancing Bulgaria's absorptive capacity through improvements in institutional quality, political stability, and infrastructure to fully leverage the potential benefits of FDI.These insights offer valuable implications for policymakers aiming to optimize the economic impact of FDI in Bulgaria and other emerging economies in Eastern Europe.