Decomposition Relationship Between Factors of Production, FDI and GDP for Czech Republic—In VECM

Abstract

This article contains analysis of relationship between factors of production and GDP in the Czech Republic in the period 1994-2015. The VECM model uses the variance decomposition function in order to determine the explanation degree of changes in GDP and the remaining eight macroeconomic indicators were examined in the Czech Republic in the years 1994-2015. The empirical research confirmed that the consumption demand and trade had a strong impact on GDP, towards a weak FDI impact on economic growth results from rapid fluctuations in FDI inflows and unfavourable structure of these investments. These conditions do not guarantee a stable and effective investment cycle, including new reinvestments.