The interaction between Foreign Direct Investment and Domestic Investment: Is there crowding out effect?

After the fall of communism, Central and Eastern European countries have experienced a transition process in which a remarkable increase is observed in foreign direct investment flows into the region. During this process, when transition countries tried to adopt a free-market economy instead of a closed centrally structured economy, funds obtained through FDI constituted an essential way of financing for these countries that were trying to restructure their economy. Study questions the existence of the crowding-out effect by using data from Eastern European Countries, including Romania, the Russian Federation, Moldova, Poland, Bulgaria, Hungary, Slovak Republic, Ukraine. With this aim, PANIC Bai and Ng (2004), the bias-corrected PANIC Westerlund and Larsson (2009) unit root tests, and panel data analysis are implemented. Results obtained were consistent with theoretical expectations and showed that FDI had a crowding-out effect in the short run but, in the long run, a crowding-in impact on domestic investment.

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Institutional Reform and Locational Advantages of New EU Member Central and Eastern European Countries for Foreign Direct Investment

International Review of Public Administration ◽

10.1080/12294659.2008.10805115 ◽

2008 ◽

Vol 13 (1) ◽

pp. 97-116 ◽

Cited By ~ 2

Author(s):

Ki-Sik Hwang

Keyword(s):

Foreign Direct Investment ◽

Direct Investment ◽

Institutional Reform ◽

European Countries ◽

Eastern European ◽

Eastern European Countries

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‘Blind Bargaining’ and the Effects of Foreign Direct Investment on Recipient States: The Case of Post-Soviet and Eastern European Countries

Capital Flows and Foreign Direct Investments in Emerging Markets ◽

10.1057/9780230597969_4 ◽

2005 ◽

pp. 61-93

Author(s):

Nataliya Ass ◽

Matthias Beck

Keyword(s):

Foreign Direct Investment ◽

Direct Investment ◽

European Countries ◽

Eastern European ◽

Eastern European Countries

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Exploring Foreign Direct Investment–Economic Growth Nexus—Empirical Evidence from Central and Eastern European Countries

Sustainability ◽

10.3390/su11195421 ◽

2019 ◽

Vol 11 (19) ◽

pp. 5421 ◽

Cited By ~ 3

Author(s):

Ștefan Cristian Gherghina ◽

Liliana Nicoleta Simionescu ◽

Oana Simona Hudea

Keyword(s):

Economic Growth ◽

Sustainable Development ◽

Foreign Direct Investment ◽

Direct Investment ◽

Institutional Quality ◽

European Countries ◽

Transport Infrastructure ◽

Eastern European ◽

Long Run ◽

Eastern European Countries

This study aims to examine the link between foreign direct investment (FDI) inflows and economic growth, also considering several institutional quality variables, as well as sustainable development goals (SDGs) set in the 2030 Agenda for Sustainable Development. By estimating panel data regression models for a sample of 11 Central and Eastern European countries, from 2003 to 2016, the empirical outcomes provide support for a non-linear relationship between FDI and gross domestic product per capita. Regarding institutional quality, it is found that control of corruption, government effectiveness, regulatory quality, rule of law, and voice and accountability positively influence growth, while political stability and absence of violence/terrorism is not statistically significant. Moreover, SDGs such as poverty, income distribution, education, innovation, transport infrastructure, and information technology are noteworthy drivers of growth. The outcomes of panel fully modified and dynamic ordinary least squares partly confirm the findings. The panel vector error-correction model Granger causalities provide support for a short-run one-way causal association running from FDI to growth and a long-run two-way causal connection among FDI and growth. Furthermore, in the long run, unidirectional causal relationships running from each institutional quality indicator to economic growth and FDI are set out.

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