Foreign Direct Investment and Economic Growth: New Evidence from Post-Socialist Transition Countries

Abstract

I n this article, we revisit classic sociological debates regarding the growth effects of Foreign Direct Investment (FDI). First, we identify a series of theoretical and empirical issues that halted sociological research on the developmental consequences of FDI. Second, we illustrate that post-socialist transition (PST) provides a historically novel opportunity to reinvigorate the debate. These countries experienced rapid industrialization but nearly zero FDI under socialism, and we can therefore observe changes in output as FDI accumulates in real time and effectively control for alternative sources of underdevelopment that might otherwise become conflated with FDI. We then estimate growth models that correct for biases owing to country-and period-specific heterogeneity and endogeneity in the FDI→ growth link. Our results suggest that FDI penetration reduces economic growth in the short and long term, and are robust to alternative choices of measurement and econometric specification. We conclude by implicating these findings in debates about post-socialist transition and economic growth, and by posing questions for future research.

Signalling Demand for Foreign Investment: Postsocialist Countries in the Global Bilateral Investment Treaties Network

“…Moreover, much research in the sociology of development, adopting world-systems and dependency theoretical lenses points to negative consequences of foreign investment (Dixon & Boswell 1996;Kentor 1998Kentor , 2001de Soysa & Oneal 1999;Alderson & Nielsen 2002;Beer & Boswell 2002;Alderson 2004;Mahutga & Bandelj 2008). Further, recent studies on the link between FDI and growth have actually found a negative relationship (Herzer 2012;Curwin & Mahutga 2014). All this considered, neoliberalism that promotes FDI as a growth strategy is treated here not as based on objective economic relationships but as a policy paradigm that is constructed as more or less legitimate by states that embrace the Washington Consensus (Fourcade & Babb 2002;Mudge 2008).…”

The Impact of Institutional Environment on Inflows of Foreign Direct Investment in European Transition Economies and Latin American Countries

“…Na dopady přílivu PZI v tranzitivních ekonomikách se zaměřují např. Curwin a Mahutga (2014), Estrin a Uvalić (2013), Ichiro a Masahiro (2014), Myant a Drahokoupil (2010), v případě latinskoamerických států Falla, Olarte a Bejarano (2009), Herzer, Hühne a Nunnenkamp (2012) a Tondl a Fornero (2010).…”

Human rights protection and foreign direct investment: The case of post‐socialist countries

“…FDI contributes to the host's economic growth inter alia through the inflow of technology, enhancement of the development of enterprises and human capital and creating the competitive business environment (see for example Bevan & Estrin, ; Kurtishi‐Kastrati, ). What is more, it should increase the pace or productivity of domestic investment and provide domestic actors with access to foreign markets (Curwin & Mahutga, ). Therefore, one may conclude that if respect for human rights boosts the inflow of FDI to the given country, it should also indirectly contribute to its economic growth.…”

“…What is more, it should increase the pace or productivity of domestic investment and provide domestic actors with access to foreign markets (Curwin & Mahutga, 2014). Therefore, one may conclude that if respect for human rights boosts the inflow of FDI to the given country, it should also indirectly contribute to its economic growth.…”