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Trade, Foreign Direct Investment and Growth: Evidence from Transition Economies

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  • Hiranya K. Nath

    ()
    (Department of Economics and International Business, Sam Houston State University)

Abstract

Using fixed effects panel data approach, this paper empirically examines the effects of trade and foreign direct investment (FDI) on growth in 13 transition economies of Central and Eastern Europe, and the Baltic region (CEEB). Our analysis suggests that significant positive effect of trade on growth is a robust result for transition economies of this region. In addition, domestic investment appears to be an important determinant of growth. However, in the presence of trade in the growth equation, FDI does not seem to have any significant effect on growth. The estimation of the growth equation without trade renders FDI highly significant suggesting collinearity between trade and FDI. Furthermore, interaction between trade and FDI seems to be important for growth in transition economies. Among other findings, macroeconomic stability as reflected in the rate of inflation and fiscal balance plays a significant role in the growth process.

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Bibliographic Info

Paper provided by Sam Houston State University, Department of Economics and International Business in its series Working Papers with number 0504.

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Date of creation: Aug 2005
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Handle: RePEc:shs:wpaper:0504

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Cited by:
  1. Jan Babecky & Tomas Havranek, 2013. "Structural Reforms and Growth in Transition: A Meta-Analysis," William Davidson Institute Working Papers Series wp1057, William Davidson Institute at the University of Michigan.
  2. Adams, Samuel, 2009. "Foreign Direct investment, domestic investment, and economic growth in Sub-Saharan Africa," Journal of Policy Modeling, Elsevier, vol. 31(6), pages 939-949, November.
  3. Jan Babecky & Tomas Havranek, 2014. "Structural reforms and growth in transition," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 22(1), pages 13-42, 01.
  4. Elvira Sapienza, 2009. "FDI and Growth in Central and Southern Eastern Europe," Quaderni DSEMS 12-2009, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia.
  5. Iwasaki, Ichiro & Tokunaga, Masahiro, 2013. "Macroecnomic Impacts of FDI in Transition Economies: A Meta-Study," RRC Working Paper Series 39, Russian Research Center, Institute of Economic Research, Hitotsubashi University.
  6. Clark Don P. & Highfill Jannett & de Oliveira Campino Jonas & Rehman Scheherazade S., 2011. "FDI, Technology Spillovers, Growth, and Income Inequality: A Selective Survey," Global Economy Journal, De Gruyter, vol. 11(2), pages 1-44, July.
  7. Jan Babecky & Tomas Havranek, 2013. "Structural Reforms and Economic Growth: A Meta-Analysis," Working Papers 2013/08, Czech National Bank, Research Department.

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