Foreign Direct Investments and Economic Growth in Central and Eastern Europe: A Panel-Based Analysis

  • Lucian Belaşcu
  • Oana Popovici
  • Alexandra Horobeţ
Conference paper
Part of the Springer Proceedings in Business and Economics book series (SPBE)


One of the most discussed issues related to foreign direct investments (FDI) refers to the impact they have on the economic and social welfare of a country. Moreover, if these effects are positive, the question is to what extent and by what instruments they can be enhanced by host country governments. In recent decades, the general political opinion on FDI changed, as they are rather understood as generating competitiveness and growth for host countries and less in terms of their negative effects on the economy. Our paper investigates the relationship between FDI flows and economic growth in countries from Central and Eastern Europe that are also EU members using the panel methodology and implementing various panel specifications that shed light on the particularities of this relationship among the five countries. We find that FDI have a positive contribution to economic growth in these economies, together with capital and, to some extent, international trade size, but also that country and period idiosyncrasies matter for a better understanding of economic growth determination.


Foreign direct investments Central and Eastern Europe Panel analysis 


  1. Acarvaci, A., Ozturk, I.: Foreign direct investment, export and economic growth: empirical evidence from new EU countries. Roman. J Econ. Forecast. 2, 52–67 (2012)Google Scholar
  2. Apergis, N.: The relationship between foreign direct investment and economic growth: evidence from transition countries. Transit. Stud. Rev. 15(1), 37–51 (2008)CrossRefGoogle Scholar
  3. Badinger, H., Tondl, G.: Trade, Human Capital and Innovation: The Engines of European Regional Growth in the 1990s. ERSA conference papers No. ERSA02P043 (2002)Google Scholar
  4. Barro, R.J., Salla-i-Martin, X.: Economic Growth, 2nd edn. The MIT Press, Boston (2003)Google Scholar
  5. Beugelsdijk, S., Smeets, R., Zwinkels, R.: The impact of horizontal and vertical FDI on host’s country economic growth. Int. Bus. Rev. 17, 452–472 (2008)CrossRefGoogle Scholar
  6. Blomstrom, M., Globerman, S., Kokko, A.: The determinants of host country spillovers from foreign direct investment. CEPR Discussion Paper No. 2350 (2000)Google Scholar
  7. Borensztein, E., De Gregoria, J., Lee, J.W.: How does foreign direct investment affect economic growth? J. Int. Econ. 45(1), 115–135 (1998)CrossRefGoogle Scholar
  8. Carkovic, M.V., Levine, R.: Does foreign direct investment accelerate economic growth? University of Minnesota Department of Finance Working Paper, Minneapolis (2002)Google Scholar
  9. Choi, I.: Unit root tests for panel data. J. Int. Money Financ. 20(2), 249–272 (2001)CrossRefGoogle Scholar
  10. Curwin, K.D., Mahutga, M.C.: Foreign direct investment and economic growth: new evidence from post-socialist transition countries. Soc. Forces. 92(3), 1159–1187 (2014)CrossRefGoogle Scholar
  11. Damijan, J.P., Rojec, M.: Foreign direct investment and catching up of new EU member states: is there a flying geese pattern? Appl. Econ. Q. 53(2), 91–118 (2007)Google Scholar
  12. Demekas, D.G., Horváth, B., Ribakova, E., Wu, Y.: Foreign direct investment in European transition economies — the role of policies. J. Comp. Econ. 35, 369–386 (2007)CrossRefGoogle Scholar
  13. Estrin, S., Hanousek, J., Kocenda, E., Svejnar, J.: The effects of privatization and ownership in transition economies. J. Econ. Lit. 47(3), 1–30 (2009)CrossRefGoogle Scholar
  14. Gallova, Z.: A causal relationship between foreign direct investment, economic growth and export for Central and Eastern Europe. In: Proceedings of 30th International Conference Mathematical Methods in Economics, pp. 201–206 (2012)Google Scholar
  15. Grossman, G.M., Helpman, E.: Endogenous innovation in the theory of growth. J. Econ. Perspect. 8(1), 23–44 (1994)CrossRefGoogle Scholar
  16. Hanousek, J., Kočenda, E., Maurel, M.: Direct and indirect effects of FDI in emerging European markets: a survey and meta-analysis. Econ. Syst. 35(3), 301–322 (2011)CrossRefGoogle Scholar
  17. Im, K.S., Pesaran, M.H., Shin, Y.: Testing for unit roots in heterogeneous panels. J. Econ. 115(1), 53–74 (2003)CrossRefGoogle Scholar
  18. Iršová, Z., Havránek, T.: Determinants of horizontal spillovers from FDI: evidence from a large meta-analysis. World Dev. 42, 1–15 (2013)CrossRefGoogle Scholar
  19. Johnson, A.: The Effects of FDI Inflows on Host Country Economic Growth CESIS Working Paper Series, Paper No. 58. Royal Institute of Technology, Sweden (2006)Google Scholar
  20. Lall, S., Narula, R.: Foreign direct investment and its role in economic development: do we need a new agenda? Eur. J. Dev. Res. 16(3), 447–464 (2004)CrossRefGoogle Scholar
  21. Levin, A., Lin, C.-F., Chu, C.-S.: Unit root tests in panel data: asymptotic and finite-sample properties. J. Econ. 108(1), 1–24 (2002)CrossRefGoogle Scholar
  22. Maddala, G.S., Wu, S.: A comparative study of unit root tests with panel data and a new simple test. Oxf. Bull. Econ. Stat. 61(S1), 631–652 (1999)CrossRefGoogle Scholar
  23. Mankiw, N.G.: Principles of Economics, 7th edn. South-Western Cengage Learning, Stamford (2015)Google Scholar
  24. Moura, R., Forte, R.: The Effects of Foreign Direct Investment on the Host Country Economic Growth – Theory and Empirical Evidence, FEP Working Papers 390. Universidade do Porto, Faculdade de Economia do Porto (2010)Google Scholar
  25. Prochniak, M.: Determinants of economic growth in Central and Eastern Europe: the global crisis perspective. Post-Communist Econ. 23(4), 449–468 (2011)CrossRefGoogle Scholar
  26. Tiwari, A.K., Mutascu, M.: Economic growth and FDI in Asia: a panel-data approach. Econ. Anal. Policy. 41(2), 173–187 (2010)CrossRefGoogle Scholar
  27. Zykovic, S., Zykovic, I.T., Grdinic, M.: A VECM approach to detangling growth, exports, imports and FDI knot in selected CEE countries. Croat. Oper. Res. Rev. 5, 161–175 (2014)CrossRefGoogle Scholar

Copyright information

© Springer International Publishing AG 2018

Authors and Affiliations

  • Lucian Belaşcu
    • 1
  • Oana Popovici
    • 2
  • Alexandra Horobeţ
    • 2
  1. 1.Lucian Blaga University of SibiuSibiuRomania
  2. 2.Bucharest University of Economic StudiesBucharestRomania

Personalised recommendations