Can Chinese Investments Contribute to Accelerating Economic Growth in Europe?

This study investigates the impact of Chinese outward foreign direct investment (FDI) on the economic growth of 27 European countries from 2004 to 2021, amid concerns about China’s increasing economic influence in Europe. This study employs systematic econometric methods, including the LLC and IPS tests for stationarity, Kao and Pedroni cointegration tests, fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) for long-term effects, and the ARDL test for short- and long-term effects. The findings further supported by Panel Granger causality test, one-way and two-way fixed effect models, and dynamic panel models, suggest a significant positive impact of trade openness and fixed capital on longterm European economic development. The study also reveals that while Chinese FDI and trade openness primarily influence economic growth in the long run, fixed capital has both short and long-term effects. Moreover, a sensitivity analysis of rich and poor European nations confirms these patterns, emphasising the role of trade openness and fixed capital in promoting sustainable economic growth. The study suggests a balanced approach to leveraging FDI, highlighting the importance of policy measures that encourage trade openness and fixed capital investment to enhance economic development in Europe.