A causal relationship between foreign direct investment, economic growth and export for Central and Eastern Europe

Foreign direct investment is generally considered to be an instrument how to stimulate economic growth of any country. For this purpose governments of transition countries try to encourage the inflow of foreign direct investment by various measures. The aim of this paper is to analyse the relation between foreign direct investment, economic growth and export in eight countries of Central and Eastern Europe. Estimation of effects on economic growth and export was performed for each country of the region individually in the period from 1993 to 2010. The co-integration method and vector error correction model were applied on quarterly data. The results confirm the existence of long-term causal links between variables studied in five of the eight countries of the region. The impact of foreign direct investment within the region of Central and Eastern Europe, however, is not clear, since there were positive as well as negative effects proven on export.