IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/7668.html
   My bibliography  Save this paper

Foreign Direct Investment and Growth in Transition Economies

Author

Listed:
  • Aleksynska, Mariya
  • Gaisford, James
  • Kerr, William

Abstract

Recent studies of developing countries have suggested that the effectiveness of foreign direct investment (FDI) as spur to econo mic growth depends on the availability of "human capital" or skilled labour in a host country. In other words, it is primarily the synergy between FDI and human capital — rather than FDI itself — that acts as a strong stimulant to growth. Since many transition economies such as Ukraine have abundant human capital, this implies that policies that encourage FDI may be very beneficial in facilitating economic restructuring and stimulating growth. This paper provides a thorough empirical investigation of this issue by examining the experience of Ukraine and other transitional economies. The paper provides an overview of Ukraine’s experience with FDI and growth before systematically analyzing the connection between these variables for a panel of transition economies. While the paper finds deficiencies in earlier work examining the synergy between FDI and human capital, it finds interesting evidence that is consistent with the synergy hypothesis for transition economies. Further, the analysis also suggests that there is a complementary — rather than substitute — relationship between FDI and domestic investment. Thus, the presence of FDI may provide new learning opportunities for those making domestic investments and visa versa. The possibility that it is not large flows of FDI that cause high economic growth rates, but strong growth that acts as a magnet for FDI is also investigated. While the paper shows that there is little empirical evidence of such reverse causation in transition economies, it also reveals that there is little evidence that FDI stimulates economic growth beyond the current year. This lack of persistence in the benefits of FDI in transition economies suggests that there may be room for policy initiatives to increase the efficacy of FDI.

Suggested Citation

  • Aleksynska, Mariya & Gaisford, James & Kerr, William, 2003. "Foreign Direct Investment and Growth in Transition Economies," MPRA Paper 7668, University Library of Munich, Germany, revised Dec 2003.
  • Handle: RePEc:pra:mprapa:7668
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/7668/1/MPRA_paper_7668.pdf
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Stanley Fischer & Ratna Sahay, 2000. "The Transition Economies After Ten Years," IMF Working Papers 00/30, International Monetary Fund.
    2. Pietro Garibaldi & Nada Mora & Ratna Sahay & Jeromin Zettelmeyer, 2001. "What Moves Capital to Transition Economies?," IMF Staff Papers, Palgrave Macmillan, vol. 48(4), pages 1-6.
    3. Campos, Nauro F & Kinoshita, Yuko, 2002. "Foreign Direct Investment as Technology Transferred: Some Panel Evidence from the Transition Economies," Manchester School, University of Manchester, vol. 70(3), pages 398-419, June.
    4. Balasubramanyam, V N & Salisu, M & Sapsford, David, 1996. "Foreign Direct Investment and Growth in EP and IS Countries," Economic Journal, Royal Economic Society, vol. 106(434), pages 92-105, January.
    5. Feenstra, Robert C & Markusen, James R, 1994. "Accounting for Growth with New Inputs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 429-447, May.
    6. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 407-443.
    7. de Mello, Luiz R, Jr, 1999. "Foreign Direct Investment-Led Growth: Evidence from Time Series and Panel Data," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 133-151, January.
    8. Blomstrom, Magnus & Kokko, Ari, 1998. " Multinational Corporations and Spillovers," Journal of Economic Surveys, Wiley Blackwell, vol. 12(3), pages 247-277, July.
    9. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
    10. Blomström, Magnus & Kokko, Ari, 2003. "The Economics of Foreign Direct Investment Incentives," EIJS Working Paper Series 168, Stockholm School of Economics, The European Institute of Japanese Studies.
    11. Ricardo Hausmann & Eduardo Fernández-Arias, 2000. "Foreign Direct Investment: Good Cholesterol?," Research Department Publications 4203, Inter-American Development Bank, Research Department.
    12. Stanley Fischer & Ratna Sahay, 2000. "The Transition Economies After Ten Years," NBER Working Papers 7664, National Bureau of Economic Research, Inc.
    13. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
    14. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
    15. Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Stefan Lutz & Oleksandr Talavera & Sang-Min Park, 2008. "Effects of Foreign Presence in a Transition Economy: Regional and Industrywide Investments and Firm-Level Exports in Ukrainian Manufacturing," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 44(5), pages 82-98, September.
    2. Gulcin Elif Yucel, 2014. "FDI and Economic Growth: The Case of Baltic Countries," Research in World Economy, Research in World Economy, Sciedu Press, vol. 5(2), pages 115-134, September.
    3. Jelena Tast, 2014. "The Role of FDI in the Economic Development of Transition Countries," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 2(2), pages 34-44.
    4. Stefan Lutz & Oleksandr Talavera & Sang-Min Park, 2008. "Effects of Foreign Presence in a Transition Economy: Regional and Industrywide Investments and Firm-Level Exports in Ukrainian Manufacturing," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 44(5), pages 82-98, September.

    More about this item

    Keywords

    foreign direct investment; spillovers from FDI; human capital complementarities; transition economies; growth;

    JEL classification:

    • P33 - Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:7668. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter) or (Rebekah McClure). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.