FOREIGN DIRECT INVESTMENT INFLOWS AND ECONOMIC GROWTH IN CENTRAL AND EASTERN EUROPEAN COUNTRIES - HETERODOX APPROACH

The aim of this paper is to investigate the relationship between foreign direct investment (FDI) and economic growth. The available empirical research on the subject relationship does not provide a clear answer to the direction and intensity, as well as a sign of mutual influence. Unlike the generally assumed positive effects which FDI inflows have on economic growth, recent empirical studies found negative impact on growth or even not impact at all. On the other hand, FDI inflow benefits, inter alia, depend on the stage of development and the developmental model of the recipient country. By linking FDI inflows and the countries growth model, we obtained Central and Eastern European countries (CEE) as the predominantly demand-led growth model countries. The study covers 15 CEE countries for the period 1995 - 2016. Initially, the Granger causality test determines the direction of influence of FDI inflows and GDP growth rate, showing that an increase in the GDP growth rate also leads to an increase in total FDI inflows, while the reverse does not hold. In the second step, the panel data analysis tests the impact of the economic growth on FDI inflows, taking selected institutional, monetary and fiscal variables as control variables. The empirical results are elaborated theoretically in the context of a heterodox post-Keynesian paradigm, which assumes that foreign capital in the case of middle-income countries leads to an increase in domestic consumption due to real exchange rate appreciation, an increase in the current account deficit, the creation of macroeconomic imbalances and "negative" reallocation of resources seeing in market seeking FDI strategy.