Foreign direct investment, domestic investment, and the role of institutions in Central, Eastern, and South-Eastern Europe
The paper examines the relationship between foreign direct investment (FDI) and domestic investment in Central, Eastern, and South-Eastern European (CESEE) countries from 1995 to 2021. The primary hypothesis posits that FDI exerts a positive influence on domestic investment, with variations...
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| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Faculty of Economics, Belgrade
2024-01-01
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| Series: | Ekonomski Anali |
| Subjects: | |
| Online Access: | https://doiserbia.nb.rs/img/doi/0013-3264/2024/0013-32642442027B.pdf |
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| Summary: | The paper examines the relationship between foreign direct investment (FDI)
and domestic investment in Central, Eastern, and South-Eastern European
(CESEE) countries from 1995 to 2021. The primary hypothesis posits that FDI
exerts a positive influence on domestic investment, with variations observed
across diverse institutional contexts. The research utilises fixed effects
and a one-step difference generalised method of moments (GMM) to determine
whether FDI leads to an increase or decrease in domestic investment in CESEE
countries. The findings indicate that FDI has a favourable and statistically
significant influence on domestic investment. However, the coefficients for
FDI are less than one, indicating that while FDI stimulates overall
investment, it does not create a crowding-in effect where the rise in total
investment surpasses the FDI inflows. When the data is split on the basis of
institutional quality, it is evident that FDI continues to positively impact
domestic investment in high and low-institutional- quality settings. The
coefficients for FDI in both subgroups are less than one, implying that
institutional quality does not substantially change the correlation between
FDI and domestic investment. These results indicate the positive and
significant impact of FDI on domestic investment, without crowding-in
effects for the entire sample of CESEE economies and both subgroups that
differ in institutional quality. |
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| ISSN: | 0013-3264 1820-7375 |