FDI AND GOOD GOVERNANCE DIMENSION OF SUSTAINABILITY: EMPIRICAL EVIDENCE FROM CROATIA Maja Nikšić Radić, PhD, Assistant Professor Faculty of Tourism and Hospitality Management

ToSEE - Tourism in South East Europe 3rd International Scientific Conference Sustainable Tourism, Economic Development and Quality of Life University of Rijeka, Faculty of Tourism and Hospitality Management Opatija INTRODUCTION o FDI is a fundamental instrument for inclusion in the globalized world economy o The impact of FDI on a particular country should be viewed through a complete prism of the sustainable development SUSTAINABLE DEVELOPMENT FDI Economicdimension Socio- cultural dimension Environmental dimension Goodgovernancedimension

ToSEE - Tourism in South East Europe 3rd International Scientific Conference Sustainable Tourism, Economic Development and Quality of Life University of Rijeka, Faculty of Tourism and Hospitality Management Opatija PURPOSE &AIM o Purpose - to answer the question of whether FDI contribute to sustainable development in Croatia by analyzing the relationship between the fourth dimension of sustainable development, good governance, and FDI. o Aim - to explore the causal relationship between FDI and the good governance dimension in Croatia by using Granger causality test.

Well established Less known – possibility of reverse causality (Hyun, 2006) FDI may also have an effect on governance (OECD, 2003) FDI may also have an effect on governance (OECD, 2003) Lucas, 1990; Edwards, 1990; Hausmann and Fernandez-arias, 2000; Globerman and Shapiro, 2002; Busse and Hefeker 2007; Jensen 2008; Woo, 2009; Kim, 2010; Asiedu, 2011; Samimi and Ariani, 2010, 2011; Bannaga et al, 2013; Chaib and Siham, 2014  ‘good governance’ components as significant determinants of FDI ToSEE - Tourism in South East Europe 3rd International Scientific Conference Sustainable Tourism, Economic Development and Quality of Life University of Rijeka, Faculty of Tourism and Hospitality Management Opatija LITERATURE REVIEW FDI positively affect democracy (Li, Reuveny, 2003) FDI positively affect democracy (Li, Reuveny, 2003) FDI has an effect on corruption (Larrainand Tavares, 2004; FDI has an effect on corruption (Larrainand Tavares, 2004; Pinto and Zhu, 2008; Craigwell and Wright, 2011) FDI can improve international relations (Polachek et al., 2012) FDI can improve international relations (Polachek et al., 2012) Political risk contributes to FDI inflow (Tosun et al., 2014) Political risk contributes to FDI inflow (Tosun et al., 2014) Two-way causality between FDI & good governance (Hyun, 2006) Two-way causality between FDI & good governance (Hyun, 2006)

ToSEE - Tourism in South East Europe 3rd International Scientific Conference Sustainable Tourism, Economic Development and Quality of Life University of Rijeka, Faculty of Tourism and Hospitality Management Opatija DATA AND METODOLOGY o FDI inflow (1) to 2013(4) - Croatian National Bank o The dimension of ‘good governance’ is approximated by the Voice and Accountability, Political Stability, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption variables to PRS Group & World Bank o Unit root test (ADF test) => lag lenght selection => VAR model => Granger causality test

VAR MODELS

ToSEE - Tourism in South East Europe 3rd International Scientific Conference Sustainable Tourism, Economic Development and Quality of Life University of Rijeka, Faculty of Tourism and Hospitality Management Opatija RESEARCH RESULTS ADF TEST Variable Stationarity LOGFDILevel LOGVACCFirst difference LOGPOLSFirst difference LOGRQUASecond difference LOGRLAWFirst difference LOGCCORRFirst difference LOGGOVEFFFirst difference

ToSEE - Tourism in South East Europe 3rd International Scientific Conference Sustainable Tourism, Economic Development and Quality of Life University of Rijeka, Faculty of Tourism and Hospitality Management Opatija RESEARCH RESULTS LAG LENGHT SELECTION VAR Lag Order Selection Criteria Optimal lag length Causality between logfdi and logrlaw26 Causality between logfdi and logpolstab12 Causality between logfdi and logrqua1/32 Causality between logfdi and logccorr1/22 Causality between logfdi and logvacc12 Causality between logfdi and loggoveff1/52

ToSEE - Tourism in South East Europe 3rd International Scientific Conference Sustainable Tourism, Economic Development and Quality of Life University of Rijeka, Faculty of Tourism and Hospitality Management Opatija RESEARCH RESULTS GRANGER CAUSALITY TEST CausalityChi-sqp-value FDI → Rule of Law Rule of Law → FDI FDI → Political Stability Political Stability → FDI FDI → Regulatory Quality Regulatory Quality → FDI FDI → Control of Corruption Control of Corruption → FDI FDI → Voice and Accountability Voice and Accountability → FDI FDI → Government Effectiveness Government Effectiveness→ FDI

ToSEE - Tourism in South East Europe 3rd International Scientific Conference Sustainable Tourism, Economic Development and Quality of Life University of Rijeka, Faculty of Tourism and Hospitality Management Opatija CONCLUSION o Granger causality confirmed the three one-way causality relationships and one bi-directional causality relationship o Rule of Law, Regulatory Quality & Control of Corruption => significant determinants of FDI in Croatia o FDI affect Rule of Law & Political Stability in Croatia o In the case of Croatia, FDI affects the good governance dimension of sustainable development and FDI can be considered as an asset that contributes to the sustainable development as the ultimate goal of development of each country.

Thank you for your attention! MAJA NIKŠIĆ RADIĆ, PhD, Assistant Professor University or Rijeka, Faculty of Tourism and Hospitality Management Primorska 42, Opatija, Croatia