Foreign Direct Investment in Dynamics of Endogenous Economic Growth in the Central East European Countries

• • 
  • Presentation speakers
    • Tatyana Boikova, Baltic International Academy, Riga, Latvia

  Abstract:

  The EU fifth Eastward large-scale enlargement in 2004 has given a greater dynamism to new European economy, of what the real GDP growth rates have testified especially in the Baltic States. However, here one can trace considerable qualitative differences in trends of economic dynamics in Central East Europe. The methodology of this article is based on the analysis of the models of endogenous growth to reveal the relationship between foreign direct investment and the economy’s rate of growth in the Central East European countries and to explore what macroeconomic adjustment is necessary for creation of effective aggregate demand for innovations and transition to knowledge-driven model of sustainable economic growth. From the point of view of long-run development the basis of economic growth of the Central East European economies should be promoted not by resource factors, but by transmission of knowledge, the foreign direct investment stocks in the science-intensive industries, and diffusion of new technologies to overcome the considerable gap with Old Europe in the technological level of production and export. There are significant disparities between the Central East European countries relative to cyclical behaviour of real GDP growth rate and variables foreign direct investment flows abroad, inward foreign direct investment stocks, which fluctuate as countercyclical. Such variable as foreign direct investment intensity is more procyclical, while exports of goods and services are countercyclical. The strategy of endogenous smart economic growth should be based on enhancing innovation capacity, industrial competitiveness and inflow of foreign direct investment in high-technology manufacturing and human capital to make qualitative changes in all components of the GDP. Such changes will inevitably lead to appearing high value-added products. Furthermore, investment flows should be focused on a production diversification and creation of the associated companies with participation of the multinational corporations and formation of long-term consortiums.

 

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