INSTITUTIONS IN TRANSITION: IS THE EU INTEGRATION PROCESS RELEVANT FOR INWARD FDI IN TRANSITION EUROPEAN ECONOMIES?

Uros Delevic () and Irina Heim ()
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Uros Delevic: University of Reading, UK
Irina Heim: University of Reading, UK

Eurasian Journal of Economics and Finance, 2017, vol. 5, issue 1, 16-32

Abstract: This research challenges the contemporary view of economic policy makers in transition European economies that the EU integration process will lead to a greater inflow of Foreign Direct Investments (FDI), thereby increasing living standards. With the Brexit referendum, the integration of the EU has been threatened by a distressing existential question: is EU membership valuable for transition countries if even developed countries (like the UK) vote to leave or decided not to align like Switzerland and Norway in the past? Our analysis considers the success of several countries in Eastern Europe in attracting and benefiting from FDI on their way to EU membership. Analyzing a 13-year panel data of 16 transition countries, we found no statistically significant positive association between FDI inflow and EU accession. We argue, that it is also important to consider the welfare for domestic economies that can emerge from those investments. We illustrate this through the case study of a successful combination of institutional development and local content policies implementation accompanied by sufficient FDI inflows in a non-EU country - Kazakhstan. Keywords: Transition Economies, Institutional Change, Economic Development, EU Integration, Foreign Direct Investments, Theory of MNEs

Date: 2017
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