The Impact of Foreign Direct Investments and Remittances on Economic Growth: A Case Study in Central and Eastern Europe

Calin-Adrian Comes,Daniel Stefan,Valentina Vasile,Elena Bunduchi

doi:10.3390/su10010238

Abstract

This paper investigates the impact of Foreign Direct Investment (FDI) and remittances on Economic Growth (EG), using panel data of seven countries from Central and Eastern Europe with a Gross Domestic Product (GDP) per capita under 25,000 $. The empirical literature stressed the relationships between FDI and remittances and economic growth, and our purpose is to identify if there are significant relationships between FDI, remittances and economic growth in the seven analyzed countries. We find a positive impact of both FDI and remittances on GDP, but the influence of FDI is higher in all analyzed states, with accepting the assumption of ceteris paribus principles in limiting research caused by other possible determinants.

Highlights

In the process of economic development, the formation of capital is crucial, regardless of its origin
We focus on foreign direct investment and remittances; among the most important external financial resources starting with the year 1980
We study one specific aspect of migration: the role of remittances on the macroeconomic performance of selected Central and East European Countries (CEEC), and at the same time, we consider it important to analyze which of the two components of foreign capital flows, remittances or Foreign Direct Investment (FDI), have the biggest impact on the Gross Domestic Product (GDP) of the analyzed states

Summary

Introduction

In the process of economic development, the formation of capital is crucial, regardless of its origin. It is considered that foreign capital facilitates the reduction of saving constraints, by increasing savings availability, and the reduction of commercial constraints, by extending the beneficiary country’s import capacity. In this way, the flow of foreign capital influences savings and national investment and promotes economic growth. Empirical evidence available regarding the impact of foreign capital flow on inner savings and economic development in general is divided into two categories. While a series of studies has shown that foreign capital flows lead to an accumulation of savings, others have noted that the former replace the savings and generate an increase in consumption, stimulating economic growth differently. The assumption is that remittances would have a positive correlation with output growth if they are like other capital flows, such as FDI

Methods

Results

Conclusion