Empirical investigations on FDI in the transition economies

My dissertation involves mainly an empirical examination of FDI inflows and other related issues in the Central and Eastern European countries (CEECs) both within and after the transition period. Since the opening of the CEECs in 1989, there has been a steady growth in foreign direct investment in the region. Under this steady growth, however, FDI is still significantly unevenly distributed among member states with heavy shares going to certain economies. My first chapter explores the issue by empirically investigating the effects of potential determinants of FDI in 15 CEECs from 1990 to 2004. It indicates a strong presence of agglomeration effect of FDI in the transition economies. Among the top considerations, degree of trade liberalization, labor quality and political and institutional conditions of the host country play a key role in FDI location decision. It also confirms the dominance of horizontal FDI within the region.; Meanwhile, China's recent emergence as a top FDI destination in the world arouses much concern over the potential crowding out of FDI to other emerging markets. The second chapter focuses on the correlation between the two region's FDI inflows. Using a panel data of 15 CEECs from 1990 to 2004, it shows no evidence of crowding out effect of China FDI on the CEECs. In addition, it suggests that host country's market size, degree of trade liberalization, labor quality and a global-wise healthy capital market are crucial in determining its inward FDI. Above results might also be considered a strong support for the claim that China and the Central and Eastern European countries, by undergoing the market economy transition through different approaches, are becoming integral to the global production network.; Modern growth theory suggests that foreign capital inflows and domestic human capital development as two major contributors to a sustainable economic growth. In my third chapter, the role of FDI and human capital in leading the economic growth in the CEECs is closely examined. The results indicate FDI as a strong economic growth propeller in the region. By adopting an interactive term between FDI and human capital as proposed in Borensztein et al (1998), the model reveals a potential human capital ceiling above which FDI may turn to be counterproductive. Finally, estimation also confirms an export-led growth among the CEECs.