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The Foreign Direct Investment Financial Life Cycle: Evidence of Macroeconomic Effects from Transition Economies

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  • Josef C. Brada
  • Vladimír Tomšík

Abstract

The imputation of reinvested earnings from foreign direct investment (FDI) as a debit in the balance of payments exaggerates the current account deficit. This phenomenon is of major importance for transition economies because they received massive inflows of FDI in the late 1990s. We model the FDI financial life cycle to describe the evolution of profits, reinvested earnings, and repatriated dividends for an FDI project to show that this inflow of investment to transition economies has caused large distortions in their current account deficits. We verify the workings of the FDI financial life cycle and estimate its duration using a sample of eight transition economies.

Suggested Citation

  • Josef C. Brada & Vladimír Tomšík, 2009. "The Foreign Direct Investment Financial Life Cycle: Evidence of Macroeconomic Effects from Transition Economies," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 45(3), pages 5-20, May.
    • Handle: RePEc:mes:emfitr:v:45:y:2009:i:3:p:5-20
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    Citations

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    Cited by:

    1. Septimiu Szabo, 2019. "Foreign Direct Investment in the Czech Republic: A Visegrád Comparison," European Economy - Economic Briefs 042, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. Kočenda, Evžen & Iwasaki, Ichiro, 2020. "Bank survival in Central and Eastern Europe," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 860-878.
    3. Ainura Uzagalieva & Evžen Kocenda & Antonio Menezes, 2012. "Technological Innovation in New EU Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(5), pages 48-65, September.
    4. Muhammad Tahir & Haslindar Ibrahim & Abdul Hadi Zulkafli & Muhammad Mushtaq, 2020. "Influence of Exchange Rate Fluctuations and Credit Supply on Dividend Repatriation Policy of U.S. Multinational Corporations," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(special i), pages 267-290.
    5. Adrian Martinez-Osorio & Deicy J. Cristiano-Botia & Celina Gaitan-Maldonado & Diego A. Sandoval-Herrera, 2019. "La Inversión Directa de Colombia en el Exterior (IDCE) y su renta: determinantes y dinámica reciente," Borradores de Economia 1068, Banco de la Republica de Colombia.
    6. Marvin Jahn & Paul Stricker, 2022. "FDI, liquidity, and political uncertainty: A global analysis," International Economics and Economic Policy, Springer, vol. 19(4), pages 783-823, October.

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