Commenced in January 2007
Paper Count: 30076
Foreign Direct Investment on Economic Growth by Industries in Central and Eastern European Countries
Authors: Shorena Pharjiani
Abstract:Present empirical paper investigates the relationship between FDI and economic growth by 10 selected industries in 10 Central and Eastern European countries from the period 1995 to 2012. Different estimation approaches were used to explore the connection between FDI and economic growth, for example OLS, RE, FE with and without time dummies. Obtained empirical results leads to some main consequences: First, the Central and East European countries (CEEC) attracted foreign direct investment, which raised the productivity of industries they entered in. It should be concluded that the linkage between FDI and output growth by industries is positive and significant enough to suggest that foreign firm’s participation enhanced the productivity of the industries they occupied. There had been an endogeneity problem in the regression and fixed effects estimation approach was used which partially corrected the regression analysis in order to make the results less biased. Second, it should be stressed that the results show that time has an important role in making FDI operational for enhancing output growth by industries via total factor productivity. Third, R&D positively affected economic growth and at the same time, it should take some time for research and development to influence economic growth. Fourth, the general trends masked crucial differences at the country level: over the last 20 years, the analysis of the tables and figures at the country level show that the main recipients of FDI of the 11 Central and Eastern European countries were Hungary, Poland and the Czech Republic. The main reason was that these countries had more open door policies for attracting the FDI. Fifth, according to the graphical analysis, while Hungary had the highest FDI inflow in this region, it was not reflected in the GDP growth as much as in other Central and Eastern European countries.
Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1110403Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 1298
 Aitken, Brian J, and Ann Harrison.1999. Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela. American Economic Review 89, no.3: 605 - 18.
 Baltagi, Badi H. 2001. Econometric Analysis of Panel Data. 2nd ed. Chichester, England: John Wiley and Sons Ltd.
 Bijsterbosch, Martin, and Marcin Kolasa. 2010. FDI and productivity convergence in Central and Eastern Europe: an industry-level investigation. Rev World Economics 145: 689 – 712.
 Bayoumi, Tamim, David, T. Coe and Elhanan Helpman. 1999. R&D spillovers and global growth. Journal of International Economics 47, no.2: 399 – 428.
 Borensztein, Eduardo, Jose De Gregorio, and Jong-Wha Lee. 1998. How does foreign direct investment affect growth? Journal of International Economics 45: 115 – 35.
 Castejón, Carmen F, and Julia Wörz. 2006. Good or Bad? The Influence of FDI on Output Growth, An industry-level analysis. wiiw Working Paper No. 38.
 Cernat, Lucian, and Radu Vranceanu. 2002. Globalization and development: New evidence from Central and Eastern Europe. Comparative Economic Studies 44, no. 4: 119 – 36.
 Darrat, Ali F., Samer Kherfi, and Mohamed Soliman. 2005. FDI and Economic Growth in CEE and MENA Countries: A Tale of Two Regions. 12th ERF’s Annual Conference, December 19-21, in Cairo, Egypt.
 Djankov, Simeon, and Bernard Hoekman. 2000. Foreign investment and productivity growth in Czech enterprises. Policy Research Working Paper 2115.
 Gorg, Holger, and Eric Strobl, 2002. Multinational companies and endogenous development: An empirical analysis. European Economic Review 46: 1305 – 22.
 Javorcik, Beata. 2004. Does foreign direct investment increases the productivity of domestic firms? In search of spillovers through backward linkages. American Economic Review 94. No. 3: 605 – 27.
 Johnson, Andreas. 2006. The Effects of FDI Inflows on Host Country Economic Growth. CESIS Working Paper Series. Paper No. 58. Royal Institute of Technology.
 Keller, Wolfgang, and Stephen Yeaple. 2003. Multinational Enterprises, International Trade, and Productivity Growth: Firm Level Evidence from the United States. NBER Paper No. 9504.
 Li, Xiaoying, and Xiaming Liu. 2005. Foreign Direct Investment and Economic Growth: An Increasingly Endogenous Relationship. World Development 33. no. 3: 393 – 407.
 Schneider, Patricia Higino. 2005. International trade, economic growth and intellectual property rights: A panel data study of developed and developing countries. Journal of Development Economics 78. no.2: 529 – 47.