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FDI, Trade and Growth in CESEE Countries

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Abstract

Central, Eastern and Southeastern Europe (CESEE) had experienced an export boom as well as a surge in capital inflows up to the outbreak of the economic and financial crisis, which had a major negative impact on these two facets of the CESEE growth model. Did the long-term growth prospects of the CESEE countries deteriorate, too? To answer this question, we estimate the long-run relationship and test the causality between capital flows, exports and industrial production. Vector error correction models show that exports and the stock of FDI in the CESEE region are positively related to industrial production and thus economic growth. By contrast, portfolio investment is only weakly related to the region’s industrial growth performance. These findings imply that the CESEE countries should pursue two objectives: remain attractive locations for inward FDI and enhance their export prospects.

Suggested Citation

  • Jarko Fidrmuc & Reiner Martin, 2011. "FDI, Trade and Growth in CESEE Countries," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 70-89.
  • Handle: RePEc:onb:oenbfi:y:2011:i:1:b:4
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    Citations

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    Cited by:

    1. 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.
    2. Grigor Stoevsky, 2014. "Dependencies between Labour Productivity, Export and FDI in the New EU Member Countries (cointegration analysis at sector and macroeconomic level)," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 15-42.
    3. Altin Tanku, 2012. "The impact of China and Russia on catching up in South-Eastern Europe," Chapters,in: European Integration in a Global Economy, chapter 15, pages 157-176 Edward Elgar Publishing.
    4. Iwasaki, Ichiro & Tokunaga, Masahiro, 2014. "Macroeconomic Impacts of FDI in Transition Economies: A Meta-Analysis," World Development, Elsevier, vol. 61(C), pages 53-69.
    5. Nadja Walch & Julia Wörz, 2012. "The Impact of Country Risk Ratings and of the Status of EU Integration on FDI Inflows in CESEE Countries," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 8-26.
    6. Joseph F. Francois & Julia Wörz, 2011. "Shifts in International Trade and Value Added from 1995 to 2007: Insights into the Drivers of Growth," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 37-56.

    More about this item

    Keywords

    Export-led growth; FDI; capital inflows; heterogeneous firms; cointegration; weak exogeneity test;

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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