The EU model of market integration, based on financial openness, leads to divergence and sectoral specialization, which makes the convergence of Central and East European EU countries (CEE) in the EU questionable. The idea of the paper is that forms of foreign direct investment (FDI) have a differential effect on the growth and development of countries—i.e., it is assumed that FDI inflows into the manufacturing sector have a greater intensity and impact on economic growth than inflows into the services sector. Therefore, the aim of this paper is to analyze the system determinants and transmission mechanisms of the sectoral structure of FDI inflows on the sample of 10 CEE for the period 1995–2019. Following a critical analysis of previous research, a panel model was constructed in the empirical section. A developed credit market and the purchasing power of residents lead to greater capital inflows into the services sector, while a higher GDP growth rate and a depreciated real exchange rate lead to higher inflows into the manufacturing sector. The conclusion of the paper is that changing the structure of the domestic economy based on clear industrial and investment policies is the best way to attract developmentally efficient FDI.

The capital market is an important source of financing for viable investment projects and further economic development. Development of long-term financial markets is particularly important for transition EU countries, taking into account that stock markets in these countries did not start to operate until the mid-1990s. Despite legislation infrastructure quality, functional training and significant progress in market effectiveness, the capital market in many transition economies may be regarded as shallow, illiquid and nontransparent. At the same time, one can observe the strong development of 'institutional saving' , i.e., financial development related to financial institutions like pension funds, investment funds, and insurance companies. The phenomenon of growth of institutional investors is especially important for capital markets in CEE transition countries, including the Republic of Croatia. The goal of this paper is to test the impulse of non-bank financial intermediaries' development, and also the influence of implementing the above-mentioned structure reform on capital markets development in the selected transition countries. By applying a panel data approach on a sample of six CEE countries over the period between 1995 and 2010, we provide further evidence on the specific determinants of emerging European capital markets.

Abstract

U radu se na uzorku država srednje i istočne Europe teorijski i empirijski analizira međuodnos stranih izravnih investicija i ekonomskog rasta. Dostupna istraživanja o navedenom međuodnosu ne iznose jednoznačni zaključak o smjeru i intenzitetu utjecaja dviju predmetnih varijabli, dovodeći u pitanje a priori pozitivne učinke FDI-a na ekonomski rast zemlje primateljice ulaganja. Istraživanja pritom naglašavaju da potencijalni učinci inozemne štednje na gospodarstvo zemlje primateljice ovise o stupnju ekonomskog i institucionalnog razvoja zemlje kao i o modelu rasta koji je zemlja usvojila. Polazeći od postavki postkejnesijanske ekonomske teorije, u radu se polazi od pretpostavke da većina država iz uzorka istraživanja ima usvojen demand led growth model rasta. Istraživanje pokriva uzorak od 15 država srednje i istočne Europe te razdoblje 1995. – 2016. Empirijsko istraživanje provedeno je u dva koraka; u prvom je koraku na temelju testa Grangerove kauzalnosti utvrđen smjer međuutjecaja FDI-a i varijable ekonomskog rasta pri čemu je utvrđeno da stopa rasta BDP-a vodi povećanom priljevu ulaganje, dok obrnuti slučaj ne vrijedi. U drugom koraku, poduzetom panel analizom testira se utjecaj ekonomskog rasta i odabranih kontrolnih varijabli na ukupni priljev FDI-a. Zaključno, empirijski rezultati teorijski se obrazlažu u kontekstu postkejnesijanske ekonomske teorije temeljeno na pretpostavci da inozemna štednja (kapital) u slučaju država niske i srednje razine dohotka uglavnom vodi povećanju osobne potrošnje zbog aprecijacije realnog tečaja vodeći posljedično povećanju deficita tekućeg računa balance plaćanja i stvaranju (makro)ekonomskih neravnoteža.

Croatia is characterised by a foreign direct investment (FDI) inflow, mainly in the service sector, which is partly understandable owing to the country's orientation towards tourism. On the other hand, theoretical and empirical research indicates a weak impact of FDI in the service sector on the economic growth of the recipient country. Following the theoretical framework and critical analysis of previous research, the paper, on the example of Croatia in the period q1/2000 - q3/2020, uses the VAR model to analyse the mutual influence of GDP growth rate and FDI in the service sector. The results show that the impact of the GDP growth rate on the FDI inflow into the service sector is more significant and longer lasting than vice versa. The paper emphasises the importance of the adopted growth model for the type of FDI inflows into the recipient country, which in this case is characterised by the appreciation of the real exchange rate as an indicator of the country's competitiveness, whose impact on FDI inflow into the service sector is positive and long lasting.