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FDI and Investment Uncertainty in the Baltics

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  • Jorge Durán

Abstract

Foreign direct investment (FDI) flows into the Baltic states collapsed during the crisis, experienced a short-lived recovery, and then plunged again. Today it remains subdued despite a modest but sustained recovery. This is worrying because FDI is a channel for technology transfers and its shortfall could imply that the Baltic states risk falling into a ‘middle income trap’ at around 70% of the EU-15 average income. This paper argues that the slow recovery of FDI is rather due to poor international market conditions, holding back investment in general and FDI in particular. Accordingly, FDI is expected to pick up once the economic environment improves. Still, further improving the framework conditions for investment could help to attract and reap the benefits of FDI in the future, particularly in Latvia and Lithuania.

Suggested Citation

  • Jorge Durán, 2019. "FDI and Investment Uncertainty in the Baltics," European Economy - Economic Briefs 043, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:ecobri:043
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    Cited by:

    1. Amin Sokhanvar & Glenn P. Jenkins, 2021. "An Efficient Long-Run Economic Growth Strategy for Estonia," Development Discussion Papers 2020-23, JDI Executive Programs.

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    More about this item

    Keywords

    Foreign direct investment; capital formation; unit labor costs; FDI and investment uncertainty in the Baltics; Jorge Durán; Héctor Navarrete-Plana.;
    All these keywords.

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • F6 - International Economics - - Economic Impacts of Globalization
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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