SECTORIAL COMPOSITION OF FOREIGN DIRECT INVESTMENT AND GROWTH: THE CASE OF THE SEE-5

Amir Fejzić

Ekonomske ideje i praksa, 2017, issue 24, 87-116

Abstract: The countries of the SEE5 or the Western Balkans countries are less developed European countries. Per capita GDP of the EU economies is a few times higher than in the Western Balkans. Furthermore, foreign capital inflows into the SEE5 are much lower than into the EU. The SEE5 countries see FDI as an important factor in resolving the problem of low productivity and scarce local capital. Although it is a well-accepted thesis that foreign direct investment could boost economic growth of host countries, this paper examines the real effects of the aggregate and sectorial FDI net inflows to SEE5 countries. The empirical estimates typically based only on the aggregate FDI data may not be the appropriate way because the growth effects of FDI are likely to depend on the sector in which FDI takes place. Empirical analysis, using time series cross section data for the period 2000-2014, shows that the impact of FDI net inflows on growth at the aggregate level is positive and strong, in the primary sector inclines to have a negative effect on growth, in the manufacturing sector have positive effects on growth and in the service sector exerts strong and positive effect on growth.

Keywords: foreign direct investment; sectorial composition; SEE5; spillover; productivity; economic growth (search for similar items in EconPapers)
JEL-codes: F23 F36 F43 (search for similar items in EconPapers)
Date: 2017
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