Foreign Direct Investment on Economic Growth by Industries in Central and Eastern European Countries
Present empirical paper investigates the relationship
between FDI and economic growth by 10 selected industries in 10
Central and Eastern European countries from the period 1995 to
2012. Different estimation approaches were used to explore the
connection between FDI and economic growth, for example OLS,
RE, FE with and without time dummies. Obtained empirical results
leads to some main consequences: First, the Central and East
European countries (CEEC) attracted foreign direct investment,
which raised the productivity of industries they entered in. It should
be concluded that the linkage between FDI and output growth by
industries is positive and significant enough to suggest that foreign
firm’s participation enhanced the productivity of the industries they
occupied. There had been an endogeneity problem in the regression
and fixed effects estimation approach was used which partially
corrected the regression analysis in order to make the results less
biased. Second, it should be stressed that the results show that time
has an important role in making FDI operational for enhancing output
growth by industries via total factor productivity. Third, R&D
positively affected economic growth and at the same time, it should
take some time for research and development to influence economic
growth. Fourth, the general trends masked crucial differences at the
country level: over the last 20 years, the analysis of the tables and
figures at the country level show that the main recipients of FDI of
the 11 Central and Eastern European countries were Hungary, Poland
and the Czech Republic. The main reason was that these countries
had more open door policies for attracting the FDI. Fifth, according
to the graphical analysis, while Hungary had the highest FDI inflow
in this region, it was not reflected in the GDP growth as much as in
other Central and Eastern European countries.
[1] Aitken, Brian J, and Ann Harrison.1999. Do Domestic Firms Benefit
from Direct Foreign Investment? Evidence from Venezuela. American
Economic Review 89, no.3: 605 - 18.
[2] Baltagi, Badi H. 2001. Econometric Analysis of Panel Data. 2nd ed.
Chichester, England: John Wiley and Sons Ltd.
[3] Bijsterbosch, Martin, and Marcin Kolasa. 2010. FDI and productivity
convergence in Central and Eastern Europe: an industry-level
investigation. Rev World Economics 145: 689 – 712.
[4] Bayoumi, Tamim, David, T. Coe and Elhanan Helpman. 1999. R&D
spillovers and global growth. Journal of International Economics 47,
no.2: 399 – 428.
[5] Borensztein, Eduardo, Jose De Gregorio, and Jong-Wha Lee. 1998. How
does foreign direct investment affect growth? Journal of International
Economics 45: 115 – 35.
[6] Castejón, Carmen F, and Julia Wörz. 2006. Good or Bad? The Influence
of FDI on Output Growth, An industry-level analysis. wiiw Working
Paper No. 38.
[7] Cernat, Lucian, and Radu Vranceanu. 2002. Globalization and
development: New evidence from Central and Eastern Europe.
Comparative Economic Studies 44, no. 4: 119 – 36.
[8] Darrat, Ali F., Samer Kherfi, and Mohamed Soliman. 2005. FDI and
Economic Growth in CEE and MENA Countries: A Tale of Two
Regions. 12th ERF’s Annual Conference, December 19-21, in Cairo,
Egypt.
[9] Djankov, Simeon, and Bernard Hoekman. 2000. Foreign investment and
productivity growth in Czech enterprises. Policy Research Working
Paper 2115.
[10] Gorg, Holger, and Eric Strobl, 2002. Multinational companies and
endogenous development: An empirical analysis. European Economic
Review 46: 1305 – 22.
[11] Javorcik, Beata. 2004. Does foreign direct investment increases the
productivity of domestic firms? In search of spillovers through backward
linkages. American Economic Review 94. No. 3: 605 – 27.
[12] Johnson, Andreas. 2006. The Effects of FDI Inflows on Host Country
Economic Growth. CESIS Working Paper Series. Paper No. 58. Royal
Institute of Technology.
[13] Keller, Wolfgang, and Stephen Yeaple. 2003. Multinational Enterprises,
International Trade, and Productivity Growth: Firm Level Evidence
from the United States. NBER Paper No. 9504.
[14] Li, Xiaoying, and Xiaming Liu. 2005. Foreign Direct Investment and
Economic Growth: An Increasingly Endogenous Relationship. World
Development 33. no. 3: 393 – 407.
[15] Schneider, Patricia Higino. 2005. International trade, economic growth
and intellectual property rights: A panel data study of developed and
developing countries. Journal of Development Economics 78. no.2: 529
– 47.
[1] Aitken, Brian J, and Ann Harrison.1999. Do Domestic Firms Benefit
from Direct Foreign Investment? Evidence from Venezuela. American
Economic Review 89, no.3: 605 - 18.
[2] Baltagi, Badi H. 2001. Econometric Analysis of Panel Data. 2nd ed.
Chichester, England: John Wiley and Sons Ltd.
[3] Bijsterbosch, Martin, and Marcin Kolasa. 2010. FDI and productivity
convergence in Central and Eastern Europe: an industry-level
investigation. Rev World Economics 145: 689 – 712.
[4] Bayoumi, Tamim, David, T. Coe and Elhanan Helpman. 1999. R&D
spillovers and global growth. Journal of International Economics 47,
no.2: 399 – 428.
[5] Borensztein, Eduardo, Jose De Gregorio, and Jong-Wha Lee. 1998. How
does foreign direct investment affect growth? Journal of International
Economics 45: 115 – 35.
[6] Castejón, Carmen F, and Julia Wörz. 2006. Good or Bad? The Influence
of FDI on Output Growth, An industry-level analysis. wiiw Working
Paper No. 38.
[7] Cernat, Lucian, and Radu Vranceanu. 2002. Globalization and
development: New evidence from Central and Eastern Europe.
Comparative Economic Studies 44, no. 4: 119 – 36.
[8] Darrat, Ali F., Samer Kherfi, and Mohamed Soliman. 2005. FDI and
Economic Growth in CEE and MENA Countries: A Tale of Two
Regions. 12th ERF’s Annual Conference, December 19-21, in Cairo,
Egypt.
[9] Djankov, Simeon, and Bernard Hoekman. 2000. Foreign investment and
productivity growth in Czech enterprises. Policy Research Working
Paper 2115.
[10] Gorg, Holger, and Eric Strobl, 2002. Multinational companies and
endogenous development: An empirical analysis. European Economic
Review 46: 1305 – 22.
[11] Javorcik, Beata. 2004. Does foreign direct investment increases the
productivity of domestic firms? In search of spillovers through backward
linkages. American Economic Review 94. No. 3: 605 – 27.
[12] Johnson, Andreas. 2006. The Effects of FDI Inflows on Host Country
Economic Growth. CESIS Working Paper Series. Paper No. 58. Royal
Institute of Technology.
[13] Keller, Wolfgang, and Stephen Yeaple. 2003. Multinational Enterprises,
International Trade, and Productivity Growth: Firm Level Evidence
from the United States. NBER Paper No. 9504.
[14] Li, Xiaoying, and Xiaming Liu. 2005. Foreign Direct Investment and
Economic Growth: An Increasingly Endogenous Relationship. World
Development 33. no. 3: 393 – 407.
[15] Schneider, Patricia Higino. 2005. International trade, economic growth
and intellectual property rights: A panel data study of developed and
developing countries. Journal of Development Economics 78. no.2: 529
– 47.
@article{"International Journal of Business, Human and Social Sciences:71575", author = "Shorena Pharjiani", title = "Foreign Direct Investment on Economic Growth by Industries in Central and Eastern European Countries", abstract = "Present empirical paper investigates the relationship
between FDI and economic growth by 10 selected industries in 10
Central and Eastern European countries from the period 1995 to
2012. Different estimation approaches were used to explore the
connection between FDI and economic growth, for example OLS,
RE, FE with and without time dummies. Obtained empirical results
leads to some main consequences: First, the Central and East
European countries (CEEC) attracted foreign direct investment,
which raised the productivity of industries they entered in. It should
be concluded that the linkage between FDI and output growth by
industries is positive and significant enough to suggest that foreign
firm’s participation enhanced the productivity of the industries they
occupied. There had been an endogeneity problem in the regression
and fixed effects estimation approach was used which partially
corrected the regression analysis in order to make the results less
biased. Second, it should be stressed that the results show that time
has an important role in making FDI operational for enhancing output
growth by industries via total factor productivity. Third, R&D
positively affected economic growth and at the same time, it should
take some time for research and development to influence economic
growth. Fourth, the general trends masked crucial differences at the
country level: over the last 20 years, the analysis of the tables and
figures at the country level show that the main recipients of FDI of
the 11 Central and Eastern European countries were Hungary, Poland
and the Czech Republic. The main reason was that these countries
had more open door policies for attracting the FDI. Fifth, according
to the graphical analysis, while Hungary had the highest FDI inflow
in this region, it was not reflected in the GDP growth as much as in
other Central and Eastern European countries.", keywords = "Central and East European countries (CEEC),
economic growth, FDI, panel data.", volume = "9", number = "11", pages = "3988-9", }