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Trade balances of the central and east European EU member states and the role of foreign direct investment

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  • Herrmann, Sabine
  • Jochem, Axel

Abstract

Given the large trade and current account deficits in some of the new EU member states the development of their external economic situation plays a role in assessing their aptitude to enter the European Monetary Union. The empirical analysis with aggregated data indicates that in the eight central and east European EU member states FDI and trade are complementary. This result is confirmed by an FDI enhanced gravity model which makes use of sectoral data provided by the Bundesbank's micro database direct investment (MIDI). The net effect of FDI on the trade balance is ambiguous, but FDI in high-tech industries clearly stimulates exports more than imports. Technological spill-over and the conglomeration of human capital seem to be important factors for the export performance. Against this background the prospects for the Czech Republic, Hungary, Slovenia and the Slovak Republic look more favourable compared to the Baltic states.

Suggested Citation

  • Herrmann, Sabine & Jochem, Axel, 2005. "Trade balances of the central and east European EU member states and the role of foreign direct investment," Discussion Paper Series 1: Economic Studies 2005,41, Deutsche Bundesbank.
  • Handle: RePEc:zbw:bubdp1:4235
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    File URL: https://www.econstor.eu/bitstream/10419/19626/1/200541dkp.pdf
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    Citations

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    Cited by:

    1. Dumitru, Ionut, 2008. "An assessment of the current account sustainability in Romania," MPRA Paper 18613, University Library of Munich, Germany.
    2. Karel Janda & Eva Michalíková & Věra Potácelová, 2010. "Gravitační a fiskální modely státní podpory exportních úvěrů v České republice
      [Gravity and Fiscal Models of Government Support of Export Credit in the Czech Republic]
      ," Politická ekonomie, University of Economics, Prague, vol. 2010(3), pages 305-325.
    3. Claudiu Tiberiu Albulescu & Daniel Goyeau, 2016. "The interaction between trade and FDI: the CEE countries experience," Working Papers hal-01361954, HAL.
    4. Mebratu Seyoum & Renshui Wu & Jihong Lin, 2014. "Foreign Direct Investment and Trade Openness in Sub-Saharan Economies: A Panel Data Granger Causality Analysis," South African Journal of Economics, Economic Society of South Africa, vol. 82(3), pages 402-421, September.
    5. Dumitru, Ionut & Dumitru, Ionela, 2009. "An Assessment of the Current Account Sustainability in Romania – An Inter-temporal Perspective," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 6(2), pages 23-41, June.
    6. Dumitru, Ionut, 2008. "O evaluare a sustenabilitatii deficitului de cont curent in Romania
      [An assessment of the current account sustainability in Romania]
      ," MPRA Paper 18614, University Library of Munich, Germany.
    7. repec:krk:eberjl:v:2:y:2014:i:3:p:19-31 is not listed on IDEAS
    8. Jesmin Rahman, 2008. "Current Account Developments in New Member States of the European Union; Equilibrium, Excess, and EU-Phoria," IMF Working Papers 08/92, International Monetary Fund.
    9. Herrmann, Sabine & Jochem, Axel, 2005. "Determinants of current account developments in the central and east European EU member states - consequences for the enlargement of the euro area," Discussion Paper Series 1: Economic Studies 2005,32, Deutsche Bundesbank.

    More about this item

    Keywords

    foreign direct investment; trade balance; gravity model;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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