Integration and investment development paths of CEE countries. Does EU-membership make a difference?

Abstract

ABSTRACT A number of studies have dealt with the effects of economic integration on foreign direct investment, yet without a comprehensive and simultaneous analysis of the overall positioning of the countries involved along the investment development path (IDP). In the current paper, a comparative analysis of IDPs of five Central and Eastern European (CEE) countries, both members and nonmembers of the European Union (EU), is conducted. The purpose of the paper is to determine the effect of economic integration on foreign direct investment (FDI) flows and on the movement of these CEE economies through their IDP stages. An attempt is made to identify the positioning of the sample countries on the IDP, using trend estimation depicting the relationship between net outward investment (NOI) per capita and gross domestic product (GDP) per capita, as well as detailed descriptive data on inward and outward FDI stocks and flows, subsequently complemented with econometric analysis. While the findings point to a generally positive effect of EU membership on FDI growth and IDP trajectories, integration tends to exert a stronger effect on inward FDI than on outward FDI of the investigated member countries. At the same time, the study’s findings reveal the need to add new theoretical considerations to the interface between EU integration and the IDP model, as well as formulate certain policy implications.