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Foreign direct investment drivers and growth in Central and Eastern Europe in the aftermaThéof the 2007 global financial crisis

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  • R. Jimborean
  • A. Kelber

Abstract

In the context of the recent deceleration of growth in emerging Europe, we reassess empirically the effect of foreign direct investment (FDI) inflows on economic growth in Central and Eastern European countries (CEECs) through an analysis carried out over the period 1993-2013. In a first step, we show that the main domestic determinants of FDI inflows are the market size, risk premia, unit labour costs, the openness, as well as progress in structural reforms (mainly related to privatisation process and banking sector) and institutional reforms (namely the lack of trade barriers, the ability for individuals to accumulate private property and progress in fighting corruption) in the host economy. Moreover, the macroeconomic conditions in the euro area also play an important role in explaining FDI flows to the region. In a second step, we analyse the impact of FDI inflows on economic growth. Our findings add to the strand of literature pointing out a positive effect of FDI inflows on growth. We consider the occurrence of the 2007 and 2011 crises and show their negative impact on the FDI - economic growth link, both crises reducing the positive impact of FDI on economic growth.

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  • R. Jimborean & A. Kelber, 2014. "Foreign direct investment drivers and growth in Central and Eastern Europe in the aftermaThéof the 2007 global financial crisis," Working papers 488, Banque de France.
    • Handle: RePEc:bfr:banfra:488
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    2. Gheorghe H. Popescu, 2014. "FDI and Economic Growth in Central and Eastern Europe," Sustainability, MDPI, vol. 6(11), pages 1-15, November.
    3. Jan Hagemejer, 2018. "Trade and Growth in the New Member States: The Role of Global Value Chains," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(11), pages 2630-2649, September.
    4. Mirel-Daniel Simionescu, 2017. "Determinants of Foreign Direct Investments in Bulgaria and Romania in the Context of Recent Economic Crisis," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 3(1), pages 68-72, March.

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    Keywords

    foreign direct investment; Central and Eastern Europe.;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

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