Foreign Investment and Transition : Data and Time Series

Original article UDC 330.322:338.24 Received in June 2004. I analyse panel data and time series evidence about the effect of FDIon growth in twenty transition economies. The panel data analysis suggests that the effect of FDI on growth in the group of transition economies has been marginally negative, albeit less so for the subsample of candidates for membership in the EU. On the other hand, VEC analysis of the case of Hungary reveals positive cointegration between foreign capital and industrial production in that country, with aforeign capital elasticity of around 0.5. Granger-causality tests support the relevance of FDI in explaining productivity and growth, and show evidence of "FDI-led growth", rather than of "growth-led FDI", in the case of Hungary. Anton Nakov*