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Do Foreign Direct Investments Increase the Economic Growth of Southeastern European Transition Economies?

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  • Stanisic, Nenad

Abstract

There are two important effects of foreign direct investments (FDI) on a host economy: the effect on economic growth and the effect on export performances. Both economic features are important for the transition economies' prospects of European Union (EU) accession. After a short review of relevant research, this paper examines the statistical relationship between FDI inflow and economic growth. Results do not reveal any positive correlation between these two variables. Lack of correlation between FDI inflows and economic development is rather the consequence of methodological imperfections, than the real absence of positive influences of FDI. The problem arises from the fact that the observed countries are in the transition process. Due to structural reforms, there is production and employment decrease in inefficient domestic firms. This can neutralize or even outweigh the positive effect of FDI on economic growth of host sectors.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8875.

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Date of creation: 15 May 2008
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Publication status: Published in South-Eastern Europe Journal of Economics 1.6(2008): pp. 29-38
Handle: RePEc:pra:mprapa:8875

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Keywords: Foreign Direct Investments; Economic Growth; Transition Economies; Southeast Europe;

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  1. Aturupane, Chonira & Djankov, Simeon & Hoekman, Bernard, 1997. "Determinants of intra-industry trade between East and West Europe," Policy Research Working Paper Series 1850, The World Bank.
  2. L.R. de Mello Jr., 1996. "Foreign Direct Investment, International Knowledge Transfers, and Endogenous Growth: Time Series Evidence," Studies in Economics, Department of Economics, University of Kent 9610, Department of Economics, University of Kent.
  3. Stèphane Dees, 1998. "Foreign Direct Investment in China: Determinants and Effects," Economic Change and Restructuring, Springer, Springer, vol. 31(2), pages 175-194, May.
  4. Djankov, Simeon & Hoekman, Bernard M, 2000. "Foreign Investment and Productivity Growth in Czech Enterprises," World Bank Economic Review, World Bank Group, World Bank Group, vol. 14(1), pages 49-64, January.
  5. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, Elsevier, vol. 45(1), pages 115-135, June.
  6. Nauro F. Campos & Yuko Kinoshita, 2002. "Foreign Direct Investment as Technology Transferred: Some Panel Evidence from the Transition Economies," William Davidson Institute Working Papers Series 438, William Davidson Institute at the University of Michigan.
  7. Magnus Blomstrom & Robert E. Lipsey & Mario Zejan, 1992. "What Explains Developing Country Growth?," NBER Working Papers 4132, National Bureau of Economic Research, Inc.
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Cited by:
  1. Jawaid, Syed Tehseen & Raza, Syed Ali, 2012. "Foreign Direct Investment, Growth and Convergence Hypothesis: A Cross Country Analysis," MPRA Paper 39000, University Library of Munich, Germany.

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