The Role of FDI in the Economic Development of Transition Countries

Abstract

FDI are considered a key instrument in the process of transforming the former centrally planned economies and stimulate economic growth in the transition period. Economic theory suggests that FDI are an important factor for the economic growth of the host-country, while according to empirical research in general, there is a positive correlation between FDI and the economic growth, but the causality direction is not clear: FDI inflow stimulates economic growth, but in the same time FDI inflows grow with the country’s economic development. Therefore, the objective of research in the paper is the relationship between FDI and economic growth in SEE and CIS countries. The relationship between the FDI and the economic growth in transition countries is examined by linear regression correlation of the relevant variables, covering the period from 2004 to 2011. Through the Pierce coefficient and the coefficient of determination, the interaction between the relevant variables and the dependence intensity is examine, and in this context general conclusions are drawn about the effects of FDI in the SEE and CIS countries. At the same time, the beta-coefficient is used to examine the value of the change in each variable separately, in order to make a more detailed analysis of the results obtained. In order to determine the direction of causality between the FDI and the economic growth of the country, research is carried out the influence of the transition indicators on the FDI inflow in the SEE and CIS countries from 2004 to 2011.