<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>Emergence of new economic entities, through either integration or disintegration, always creates system inefficiencies resulting in temporary economic setbacks. At the macroeconomic level, this brings about slowdown in economic growth and delayed catching up with more advanced economies. In Europe, the turn of the century brought along political and economic disintegration, on one hand, and economic integration, on the other. Demise of planned economies across Eastern Europe caused serious economic turmoil due to market fragmentation. Meanwhile, creation of new economic architecture in the European Union (EU) has created additional challenges of economic restructuring. Therefore, achieving sustainable economic growth and high income has become the ultimate economic policy objective. Equity investment in form of foreign direct investment (FDI) has proven to be the right choice, because influx of fresh capital and know-how enabled strong economic growth and restructuring through increasing labor productivity and economic efficiency. Stronger competitive pressure through FDI contributed to dynamic restructuring, resembling in increasing exports and stronger integration into global economy. Yet, growth rates across countries were not always proportional to the volume of inward FDI, which indicates a certain level of underperformance for some countries. The aim of the paper is to closer investigate the FDI-growth nexus by differentiating between two types of FDI – mergers and acquisition (M&amp;A) and greenfield investment. Thus, the analysis will take account of the characteristics of the FDI host economy, and those of the investing company, because we find it reasonable to assume that different forms of FDI incorporate different business dynamics and the time horizon of the investor’s expectations. In order to find out the effects of different forms of FDI on economic growth we apply panel data analysis with fixed effects and Prais-Winsten estimator on the sample of European reform countries whereby FDI, M&amp;A and greenfield investment are considered the key variables. Analysis also includes a set of control variables, which combine standard neoclassical growth variables. Results indicate that, with reference to the level of innovativeness, different types of FDI indeed produce different effects on host countries’ economic growth.</p>
</abstract>

Emergence of new economic entities, through either integration or disintegration, always creates system inefficiencies resulting in temporary economic setbacks. At the macroeconomic level, this brings about slowdown in economic growth and delayed catching up with more advanced economies. In Europe, the turn of the century brought along political and economic disintegration, on one hand, and economic integration, on the other. Demise of planned economies across Eastern Europe caused serious economic turmoil due to market fragmentation. Meanwhile, creation of new economic architecture in the European Union (EU) has created additional challenges of economic restructuring. Therefore, achieving sustainable economic growth and high income has become the ultimate economic policy objective. Equity investment in form of foreign direct investment (FDI) has proven to be the right choice, because influx of fresh capital and know-how enabled strong economic growth and restructuring through increasing labor productivity and economic efficiency. Stronger competitive pressure through FDI contributed to dynamic restructuring, resembling in increasing exports and stronger integration into global economy. Yet, growth rates across countries were not always proportional to the volume of inward FDI, which indicates a certain level of underperformance for some countries. The aim of the paper is to closer investigate the FDI-growth nexus by differentiating between two types of FDI – mergers and acquisition (M&A) and greenfield investment. Thus, the analysis will take account of the characteristics of the FDI host economy, and those of the investing company, because we find it reasonable to assume that different forms of FDI incorporate different business dynamics and the time horizon of the investor’s expectations. In order to find out the effects of different forms of FDI on economic growth we apply panel data analysis with fixed effects and Prais-Winsten estimator on the sample of European reform countries whereby FDI, M&A and greenfield investment are considered the key variables. Analysis also includes a set of control variables, which combine standard neoclassical growth variables. Results indicate that, with reference to the level of innovativeness, different types of FDI indeed produce different effects on host countries’ economic growth.

FDI and Economic Growth – Perspective of Southeast European Countries

Zagreb International Review of Economics and Business

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

{"article-title":"FDI and Economic Growth \u2013 Perspective of Southeast European Countries"}

Emergence of new economic entities, through either integration or disintegration, always creates system inefficiencies resulting in temporary economic...

FDI and Economic Growth – Perspective of Southeast European Countries

Published Online: Jun 09, 2023

Page range: 119 - 146

DOI: https://doi.org/10.2478/zireb-2023-0006

Keywords
FDI, M&A, greenfield investment, SEEC, EU

© 2023 Dražen Derado et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

FDI and Economic Growth – Perspective of Southeast European Countries

Published Online: Jun 09, 2023

Page range: 119 - 146

DOI: https://doi.org/10.2478/zireb-2023-0006

KeywordsFDI, M&A, greenfield investment, SEEC, EU

© 2023 Dražen Derado et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Keywords
FDI, M&A, greenfield investment, SEEC, EU