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The effects of FDI on recipient countries in Central and Eastern Europe


  • Bačić, Katarina
  • Račić, Domagoj
  • Ahec Šonje, Amina


Literature on economic growth and FDI implies that FDI can facilitate growth of recipient economy via capital formation channel directly and via positive spillovers and inclusion into international productive and innovative networks indirectly. In this paper, the role of FDI in explaining growth is examined in two quantitative steps. In the first step, a bi-variate Granger causality test is used to examine whether FDI Granger causes growth, merchandise exports and imports. In the second step, growth equation with FDI as one of the explanatory variables is estimated based on panel data set for 11 transition economies in the period 1994-2002. The final results of the analysis imply that FDI is not statistically significant in explaining variation in the growth rates of the observed economies. The finding can be explained by the fact that FDI have not contributed to the capital formation strongly because they have dominantly flown into the observed economies as “brownfield” investments, moreover, they have been directed into service sector.

Suggested Citation

  • Bačić, Katarina & Račić, Domagoj & Ahec Šonje, Amina, 2004. "The effects of FDI on recipient countries in Central and Eastern Europe," MPRA Paper 83263, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:83263

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    References listed on IDEAS

    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
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    3. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
    4. Theodore H. Moran, 2001. "Parental Supervision: The New Paradigm for Foreign Direct Investment and Development," Peterson Institute Press: Policy Analyses in International Economics, Peterson Institute for International Economics, number pa64, January.
    5. Gabor Hunya, 2000. "International Competitiveness Impacts of FDI in CEECs," wiiw Research Reports 268, The Vienna Institute for International Economic Studies, wiiw.
    6. van Tulder, Rob & Ruigrok, Winifred, 1998. "European Cross-National Production Networks in the Auto Industry: Eastern Europe as the Low End of European Car Complex," UCAIS Berkeley Roundtable on the International Economy, Working Paper Series qt35n5n451, UCAIS Berkeley Roundtable on the International Economy, UC Berkeley.
    7. Laura Resmini, 2000. "The Determinants of Foreign Direct Investment in the CEECs: New evidence from sectoral patterns," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(3), pages 665-689, November.
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    12. Sadowski, Bert M., 2001. "Towards market repositioning in Central and Eastern Europe: international cooperative ventures in Hungary, Poland and the Czech Republic," Research Policy, Elsevier, vol. 30(5), pages 711-724, May.
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    Cited by:

    1. LSE Enterprise,, 2011. "Study on the impact of the single market on cohesion: implications for cohesion policy, growth and competitiveness," LSE Research Online Documents on Economics 42840, London School of Economics and Political Science, LSE Library.

    More about this item


    Foreign direct investment; economic growth; bi-variate Granger causality test; panel regression analyisis; Central and Eastern Europe;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business


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