How Foreign Direct Investment Facilitates the Globalization Process and Stimulates Economic Growth in Central and Eastern European Countries

This paper examines the role of the Foreign Direct Investment (FDI) in facilitating advancing globalization process in the Central and Eastern European (CEE) economies and explores the relationship between increasing FDI stock and economic growth in analyzed countries. The first section discusses FDI inflows into the CEE countries. The second section analyzes FDI stock as a percentage of the Gross Domestic Product (GDP) and FDI stock per capita. The third section provides an overview of GDP growth in CEE. The fourth section includes propositions for the future research and concludes that this study can be extended to verify the correlation between FDI stock and the economic growth. EXECUTIVE SUMMARY This study reviews the experience of Central and Eastern European (CEE) countries in integrating into the global market and suggests a link between FDI stock and economic growth. FDI inflows into CEE economies have been a vital factor facilitating the privatization process in the first stage of the transition period. At present, as the privatization and restructuring process comes to an end, the main reasons to pursue FDI are to boost productivity, encourage employment, stimulate innovation and technology transfer and enhance sustained economic growth. Attracting foreign investment and liberalizing economy have become the key components of national strategies for CEE countries. The governments of those countries have officially encouraged FDI and have provided substantial incentives for foreign companies. The most vital factor contributing to the growth of FDI in CEE countries over the past few years has been their accession to the European Union (1 May 2004). High foreign capital inflows and high percentage shares of FDI stock in GDP indicate that foreign capital plays a vital role in CEE economies and has become an important indicator of advancing globalization