The Impact of External Sector on the Economic Growth of Central and East European Countries

Financial crisis has resulted in a decline of economic activity and the problems of indebtedness have arisen in many European countries. The aim of this paper is to research the determinants of the GDP growth with a special emphasize on the FDI and external debt in the group of GEE countries (Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia) for the period 2001-2011. The analysis includes external and internal factors of economic growth. The results of panel data analysis (GMM methodology). show that the increase of shares of external debt in GDP, share of FDI in GDP and current account deficit negatively affect the economic growth, while inflation, budget deficits and openness have a positive effect on the GDP growth in the GEE region. The Granger causality analysis between GDP growth, FDI and external debt has shown that there are no bidirectional causal relationships but both FDI and external debt cause GDP growth.