DETERMINANTS OF FOREIGN DIRECT INVESTMENT IN THE VISEGRAD GROUP COUNTRIES AFTER THE EU ENLARGEMENT

Weihua Su,Dongcai Zhang,Chonghui Zhang,Valentina Guseva,Mihaela Simionescu,Josef Abrhám,Natalya Yaroshevich

doi:10.3846/tede.2018.5487

Abstract

Considering the role of foreign direct investment (FDI) inflows in the sustainable development of a country, the main aim of this paper is to identify some macroeconomic factors that positively or negatively influence FDI in Visegrad group countries after the European Union (EU) enlargement in 2004. We employed two types of approaches in our analysis: i) time series and ii) panel data approach. According to the generalized ridge regressions estimated in Bayesian framework, the perceived corruption was a factor that influenced FDI in all the countries. In Poland, Czech Republic and Slovakia corruption came through as a serious obstacle for FDIs since 2005, but this was not the case for Hungary. Even if Hungary is perceived as a country with high influence, foreign investors seem no to care about this fact and are more interested in the quality of human resources and the possibility to increase exports. Our panel approach based on a panel ARDL model identified a significant relationship between FDI, corruption index and labour force with advanced education however this causality was only detected in the long run. According to the Granger causality in panel, the attraction of FDI inflows succeeded in generating changes in total tax rate, but the issues related to corruption were not reduced at an acceptable level for foreign investors in Poland, Slovakia, and the Czech Republic.

Highlights

After the collapse of the Socialism and the planning system in the beginning of the 1990s, the countries of Central and Eastern Europe (CEECs) developed various strategies to attract foreign investment in order to achieve a sustained economic growth (Chidlow, Salciuviene, & Young, 2009; Chen, Cheng, Nikic, & Song, 2018; Qi & Li, 2017)
Considering the important role of foreign direct investments (FDI) in the economic and social development of the V4 countries, this paper identifies some macroeconomic determinants of FDI inflows into these economies
The new economic realities after 2004 (EU integration and world economic crisis) made V4 one of the region that attracted most of the FDI from EU-15, but significant decreases were observed in crisis period

Summary

Introduction

After the collapse of the Socialism and the planning system in the beginning of the 1990s, the countries of Central and Eastern Europe (CEECs) developed various strategies to attract foreign investment in order to achieve a sustained economic growth (Chidlow, Salciuviene, & Young, 2009; Chen, Cheng, Nikic, & Song, 2018; Qi & Li, 2017). The foreign direct investments (FDI) brought by multinational corporations (MNCs) had an important role in the process of transformation of planned economies into functional market economies, due to the inflow of jobs, management skills, technological transfer together with increasing exports. A second reason is related to the fact that FDI is a significant source of external finance in the capital formation and ensures transfer of human capital, resources and technological progress between countries that generate economic and social development in the transition economies. The liberalization towards a regime based on market depends on the changing nature of FDI (Stack, Ravishankar, & Pentecost, 2017)

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