Impact of foreign direct investment and international tourism on long-run economic growth of Estonia

ABSTRACT

Purpose>International tourism and FDI inflows have generated detectable beneficial impacts on the economy of Estonia in the last decades. However, recently, poor international market conditions mostly caused by the trade war and COVID-19 pandemic have been a potential threat to these two factors. Besides, the poor performance of investments in recent years is behind the stagnation of productivity in Estonia. This study examines the dynamics of the effects of these factors on the rate of economic growth in Estonia and provides policy implications in line with sustained recovery.Design/methodology/approach>A nonlinear ARDL technique is employed in this study to investigate the long-run effects of FDI and the degree of tourism specialization on economic growth rate.Findings>Our findings indicate that the economic growth rate of Estonia in the long run has been positively affected by both the rate of FDI inflows and international tourism.Originality/value>This is the first study that employs a non-linear approach to investigate the dynamics of long-run effects of FDI and tourism specialization on the rate of economic growth in Estonia and provides policy implications in line with optimal growth strategy considering the economic structure, the current level of productivity and available potentials in this economy.