FDI, Trade and Growth in CESEE Countries

Jarko Fidrmuc and Reiner Martin

Focus on European Economic Integration, 2011, issue 1, 70-89

Abstract: Central, Eastern and Southeastern Europe (CESEE) had experienced an export boom as well as a surge in capital inflows up to the outbreak of the economic and financial crisis, which had a major negative impact on these two facets of the CESEE growth model. Did the long-term growth prospects of the CESEE countries deteriorate, too? To answer this question, we estimate the long-run relationship and test the causality between capital flows, exports and industrial production. Vector error correction models show that exports and the stock of FDI in the CESEE region are positively related to industrial production and thus economic growth. By contrast, portfolio investment is only weakly related to the region’s industrial growth performance. These findings imply that the CESEE countries should pursue two objectives: remain attractive locations for inward FDI and enhance their export prospects.

Keywords: Export-led growth; FDI; capital inflows; heterogeneous firms; cointegration; weak exogeneity test (search for similar items in EconPapers)
JEL-codes: C32 F21 F43 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (15)

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