Modelling GDP and FDI for Czech Republic—Impulse Response Functions in VECM

Abstract

This article presents detailed the impact of factors of production on economic growth in the Czech Republic in the period 1994-2015. The main research focuses on the impact of foreign direct investment (FDI) and on answering the question whether between GDP and FDI there is a causality relationship. The VECM model using the impulse responses function confirmed the occurrence of a bi-directional relationship between FDI and GDP in the Czech Republic. According to the empirical evidence, it was confirmed that the consumption demand and trade had a strong impact on GDP. However, these findings demonstrated that a weak FDI had an impact on economic growth.