Foreign Direct Investment, Production Factors Productivity and Income Inequalities in Selected CEE Countries

Abstract

The issue of global economic inequality has inspired researchers to explore the potential connection between income inequalities and foreign direct investment (FDI), as it is one of the driving forces of globalization. Although there is a large body of theoretical as well as empirical studies linking these variables, the empirical literature on the relationship between FDI, production factors productivity and income inequalities is not conclusive because most scientists treat FDI as uniform. Therefore there is a lack of reliable empirical evidence on the distributional effects of FDI, especially in emerging countries, such as in Central and Eastern Europe (CEE). The research presented in the article fills this gap. The aim of the study is to analyze the impact of the inflow of foreign direct investment on the productivity of production factors (labor, capital and total factor productivity) and income inequality of households in four Central and Eastern European countries (Poland, the Czech Republic, Slovakia and Hungary) in the period 1990–2016. The four countries were selected for analysis as a classic example of European countries transforming their economic structures and similar in terms of the level of economic development. In turn, the choice of the analysis period was related to the availability of necessary statistical data. According to the theory of economics, the inflow of foreign direct investment should have a positive impact on production factors productivity as well as on income inequalities of households in investment receiving countries. In the study, a research method based on the study of economic literature in macroeconomics and international finance and econometric methods (vector autoregression models—VAR) was used. Results of the research suggest a significant and positive impact of greenfield investment inflow on labor productivity and total factor productivity, as well as a positive impact of brownfield investment inflow (mergers and acquisitions) on capital productivity in countries receiving investments. Moreover, the results also revealed the lack of a statistically significant impact of greenfield and brownfield investment on income inequalities in all of the examined countries. The statistical data used in the study came from the statistical databases of the Organization for Economic Cooperation and Development (OECD), the World Bank (World Development Indicators), World Income Inequality Database (United Nations University World Institute for Development Economics Research) and Total Economy Database (The Conference Board of Canada).

Wyzwania pomiaru i analizy bezpośrednich inwestycji zagranicznych – teoria a praktyka

“…Wśród przejęć można z kolei wyróżnić inwestycje brownfield mające na celu modernizację i restrukturyzację nabywanego przedsiębiorstwa. W krajach transformacji inwestycje brownfield są często związane z prywatyzacją przedsiębiorstw państwowych (Misztal 2020;Matkovic, Jakovcic 2019).…”

Effects of Foreign Direct Investment on Wage Inequality in Developing Countries: Do recipient sectors matter?

“…The following is a number of recent studies those differ in terms of countries used in application, measures of income inequality, and techniques of estimation. Misztal (2020) explored the impact of inward FDI on income inequality in four countries of Central and Eastern Europe (CEE): Hungary, Poland, Slovakia and the Czech Republic during the period 1990-2016. World Income Inequality Database is used to measure income inequality.…”

“…Suanes (2016) justified this relative scarcity of attention to the lack of data or the lack of clarity of the theoretical relationship. Misztal (2020) justified this relative scarcity by the optimal income inequality hypothesis that is determined in isolation from FDI trends. This hypothesis assumes the existence of a favorable level of income inequality that should be accepted as a minimum to motivate skilled labor.…”

Foreign direct investment as a factor of trade development: cases of selected countries

“…As for the literature on the Visegrad countries, there is extensive literature on FDI in the region. For example, investigations of such scientists as L. Darmo, M. Novák and J. Lisý (Darmo et al 2020), B. Ramasamy and M. Yeung (Ramasamy, Yeung 2020), T. Bieliński, M. Markiewicz, E. Oziewicz (Bieliński, 2019), P. Misztal (Misztal, 2020), N. Becker and A. Cie´slik (Becker, Cie´slik, 2020), M. Pečarić, T. Kusanović, P. Jakovac (Jakovac, 2021), T. Christoforidis and C. Katrakilidis (Christoforidis, Katrakilidis, 2021), P. Trąpczyński, M. Gorynia, J. Nowak and R.Wolniak (Trąpczyński et al, 2019), K. Josifidis, N. Supic and N. Doroskov (Josifidis et al, 2020), T. Dorożyński, B. Dobrowolska and A. Kuna-Marszałek (Dorożyński et al, 2020), M. Ganić and M. Hrnjic (Ganić, Hrnjic, 2019), M. Gorynia, J. Nowak, P. Trąpczyński, R. Wolniak (Gorynia et al, 2019), Ș.C. Gherghina, L.N.…”