Do Foreign Direct Investments Increase the Economic Growth of Southeastern European Transition Economies?

Nenad Stanišić ()

MPRA Paper from University Library of Munich, Germany

Abstract: There are two important effects of foreign direct investments (FDI) on a host economy: the effect on economic growth and the effect on export performances. Both economic features are important for the transition economies' prospects of European Union (EU) accession. After a short review of relevant research, this paper examines the statistical relationship between FDI inflow and economic growth. Results do not reveal any positive correlation between these two variables. Lack of correlation between FDI inflows and economic development is rather the consequence of methodological imperfections, than the real absence of positive influences of FDI. The problem arises from the fact that the observed countries are in the transition process. Due to structural reforms, there is production and employment decrease in inefficient domestic firms. This can neutralize or even outweigh the positive effect of FDI on economic growth of host sectors.

Keywords: Foreign Direct Investments; Economic Growth; Transition Economies; Southeast Europe (search for similar items in EconPapers)
JEL-codes: C10 F21 O52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fdg and nep-tra
Date: 2008-05-15
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Published in South-Eastern Europe Journal of Economics 1.6(2008): pp. 29-38

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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:8875

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