Does FDI Inflow Accelerate Export Performance in Countries in Transition? An empirical analysis of European Countries in Transition

Besnik Fetai, Fisnik Morina


The main objective of this study is to examine whether inflows of foreign direct investment
(FDI) enhanced export performance in European transition countries during the period
2000 to 2015. For this purpose, we employ different econometric techniques including
models of fixed effects, random effect, the Hausman-Taylor instrumental IV, and the
generalized method of moment system (GMM). The findings show that FDI inflows had a
positive effect on export performance in European countries in transition. Other factors
that show positive effects on the level of export are investments (gross capital formation as a
percent of GDP) and the trade liberalization index (TLI). The factors that show a negative
effect regarding exports are real GDP and the real exchange rate (RER). The study suggests
that European countries in transition develop strategies that improve the level of
infrastructure, human resources, governance and the business environment. Since FDI
inflows have a positive effect on the level of export, the results suggest that government
policymakers should pursue a course of action that leads to institutional improvements,
provides more incentives for foreign companies, and implements new and appropriate
reforms to attract more FDI inflows, which in turn lead to higher export growth.
Keywords: FDI, trade, transition countries, dynamic panel data
JEL Classification: E2, F1, F2

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