Foreign Direct Investment and Economic Development: Evidence from Central and Eastern Europe

Abstract

This paper aims to investigate the role of foreign direct investment (FDI) on economic development in transition countries of Central and Eastern Europe. Statistical analysis is applied to investigate the relationship between FDI indicators and some explanatory variables. Findings show that FDI stock and especially labor productivity significantly stimulate exports. Moreover, the ratio of FDI stock to GDP is found to be the most powerful driver of employment. Outcomes depend however on FDI policies. Therefore, policy-makers need to carefully consider the side effects of the measures they design, to avoid negative effects.