Impact of FDI on Economic Growth: Evidence from V4 Countries

Abstract

There is no way to adequately evaluate the economic development of the V4 countries over recent decades without taking into account the role played in it by foreign direct investment (FDI). Albeit the exact gains obtained from FDI are difficult to measure, their benefitial developmental impact has been evidenced by both the ensuing accelerated structural adaptation and higher levels of technological performance achieved across the V4 countries. FDI has ameliorated the areas of total factor productivity growth and export performance, rendering as well the market environment of the economies observed much more regular. FDI as a vehicle of acceleration of economic growth has contributed to the narrowing of the performance gap between the V4 grouping and the "old" EU member states. The first part of the article is, therefore, focused on the creation of conditions making for FDI inflow to the V4 countries. At the beginning of the economic transition, the FDI inflow to the V4 economies was predominantly dependent on their ability to secure favourable business environment and conditions required for the free movement of international capital.The second part of the paper seeks to compare FDI inflows to the V4 countries during the pre- and post-crisis periods. The upward impact of FDI stock on the economic growth throughout the V4 countries is then estimated by means of a growth accounting method. Lastly, we address the relationship between the technological level and absorptive capacity of the economies under scrutiny, with an eye to the potential impact of FDI on innovation-related performance growth.