Foreign borrowing, foreign direct investment inflows and economic growth in European Union transition economies

Globalization gained speed as of 1980s and, in turn, considerable increases in transnational goods, services, and capital flows have been seen. In this context, developing and emerging economies have attracted a significant amount of foreign direct investments and also foreign borrowing has become an important financing source, especially for developing or underdeveloped countries with insufficient savings for investments. The rapidly rising foreign borrowing and foreign direct investments have led scholars and policy-makers to question the economic, institutional, and social effects of foreign borrowing and foreign direct investments. Furthermore, the iron curtain simultaneously collapsed as of the late 1980s together with the accelerating globalization and the member states of the Eastern Bloc have transited from command economy to market economy. The same EU countries in the Eastern Bloc also tend towards EU and have consequently followed the policies to integrate in the EU. Both globalization and EU negotiations caused these countries to take a significant amount of foreign borrowing and foreign direct investments. The study analyses the influence of foreign borrowing and foreign direct investment inflows on economic growth in European Union transition economies for the period of 2004-2016 through panel data analysis. The co-integration and causality analyses revealed that the influence of foreign borrowing and foreign direct investment inflows varied from country to country in EU transition economies.