Live chat The first, essential way to determine the impact of the FDI is the economic growth. Basing on the influence of the traditional growth, we can thus employ the cross-country analysis based on the model similar to the one of Solow. The output is characterized by the following: Y = Kα Hβ [AL] 1-α-β, α>0, β>0, α+β< 1.

Where the Y represents the output, while K represents the physical capital, H the human capital, A is the effectiveness of labor, and the L stands for labor. Taking h=H/AL, k=K/AL and y=Y/AL, the above equation then yields; y=k α h β. The equation can change into; ln y = α ln k + β ln h, by using the log. These formulas can be used to calculate the individual variables of a country (Romer, 1996).

A model for calculations gets developed by representing the countries by I and time by t. The panel of data Cobb-Douglas production formula is commonly used setting given by the following formula; y it = 'a' i + b t + F is (k it, h it, f it), where the y represents the y output per capita, while 'a' is the specific level of the total factory productivity, b representing the time dummy capturing the total changes in total factory productivity. The k, h, and f, do represent the log of inputs per capital the human capital and the FDI respectively (Canning, 1999).

Basing on (Vuksic, 2005), the model denotes the various industries by j. The following is the obtained model; in EX jt = α j + β1 ln PD jt + β2 ln ULC jt + β3 ln REER t + β4 lnI j(t-1) + β5 ln FDI j(t-1). All the variables have the meanings.

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