Inflow of Foreign Capital as a Factor of the Development of Current Accounts of the Eastern European Countries

The influence of foreign investments onto export, import and current account balances of five emerging market economies of Eastern Europe is identified in the paper. Constructing vector autoregression models and performing Granger causality tests revealed the impact of foreign investments onto the formation of current accounts components of Czech Republic, Slovak Republic, Poland, Hungary and Ukraine. For a more comprehensive assessment of the influence of foreign capital on the recipient countries a new economic indicator, the coefficient of international transaction compensation of foreign investment income reparation (CINR) is introduced. Analysis shows that attracting foreign capital has significant influence on the external economic positions of Czech Republic, Slovak Republic, Poland, Hungary. However, this influence is ambiguous. On the one hand, it has led to an improvement in the trade balance of the countries, on the other – to the outflow of capital as foreign investment income. The revealed in the paper increasing trend of the CINR coefficients is positive, but the high level of return on liabilities controlled by foreign direct investors requires constant monitoring of its influence on current accounts and foreign liabilities accumulation.