The Effects of Transition and Political Instability on Foreign Direct Investment Inflows: Central Europe and the Balkans

Brada, Josef C.; Kutan, Ali M.; Yigit, Taner M.

doi:10.2139/ssrn.665122

Cited by 41 publications

(53 citation statements)

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“…14 More recently, firms from the transition economies have begun to undertake investments outside their own countries. While the stock of outward FDI is still no more than 15-20% of the stock of FDI in the region, the growth of these 14 Studies include Bevan and Estrin, 2004, Carstensen and Toubal, 2004, Brada et al 2006 15 flows has accelerated rapidly in this decade. Not all or perhaps even the majority of outward FDI from transition economies is driven by money laundering and capital flight, but a review of the data strongly suggests that illicit capital flight and money laundering have been important drivers of FDI.…”

Section: An Overview Of Fdi From Transition Economiesmentioning

confidence: 99%

Illicit money flows as motives for FDI

Pérez

Brada

Drábek

2012

Journal of Comparative Economics

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We examine the role of FDI in facilitating money laundering and illegal capital flight, focusing on transition economies' FDI outflows because they largely reflect current investment decisions rather than the inertia of past decisions. We estimate a model of FDI outflows in which illicit money flows influence the volume of FDI directed toward countries considered to be centers of money laundering. We show that traditional models of FDI are not able to account for these investment flows and that our results are robust when additional explanatory variables such as host country tax rates, governance, corruption, and cultural differences between the home and host country are included in the model. We estimate that 6 to 10% of total FDI outflows and over 20% of FDI to money-laundering countries from our sample were made to facilitate illicit money flows.

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Section: An Overview Of Fdi From Transition Economiesmentioning

confidence: 99%

Illicit money flows as motives for FDI

Pérez

Brada

Drábek

2012

Journal of Comparative Economics

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“…Much of the FDI that came into transition economies has been used to purchase existing firms rather than to finance new Greenfield investments (Brada et al, 2006); however, even FDI used for mergers and acquisitions has a positive effect on domestic capital formation (Šohinger and Harrison, 2004) because investors do contribute additional capital to their acquisitions. Moreover, as Hunya (1996) shows in the case of Hungary, foreign firms have higher profits and reinvest a much higher share of it than do domestically owned firms, thus increasing capital formation in the future.…”

Section: Theoretical Frameworkmentioning

confidence: 99%

“…Moreover, as Hunya (1996) shows in the case of Hungary, foreign firms have higher profits and reinvest a much higher share of it than do domestically owned firms, thus increasing capital formation in the future. Another benefit of FDI is that it brings in new technology and managerial skills (Brada et al, 2006). Thus, foreign-owned firms are likely to be more productive (Hunya, 1996;Sgard, 2001) and to use more advanced technologies (Voicu, 2004).…”

Section: Theoretical Frameworkmentioning

confidence: 99%

“…Unlike Estonia, Hungary was an early leader in FDI inflows, in part because of its more sophisticated economic relations with the West before the transition, which led many foreign investors to view Hungary as a country that had the infrastructure and economic savvy to accept foreign investments. Another reason for Hungary's early lead was its privatization strategy, which made sales of state-owned firms to foreign investors the preferred path to privatization (Brada et al, 2006). The Czech Republic attracted the next highest level of FDI inflows (5.71 percent of GDP), followed by Latvia and Slovakia (4.8 percent each).…”

Section: Theoretical Frameworkmentioning

confidence: 99%

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European integration, productivity growth and real convergence: Evidence from the new member states

Kutan

Yigit

2009

Economic Systems

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We estimate the determinants of labor productivity growth in 8 new European Union (EU) member states that joined the Union in 2004. Our focus is on the impact of globalization and EU integration efforts on labor productivity growth. Previous studies test the impact of trade using either exports or trade openness. We also test the impact of imports separately on labor productivity growth. Using panel data for 1995-2006 period, we find that globalization has mixed effects. FDI and exports improve productivity, but imports hurt it. Regarding domestic variables, we find that human capital is the most important source of labor productivity growth in the new member states. There is also considerable adjustment of labor productivity towards EU15 levels, indicating significant "catching up" and hence real convergence. Policy implications of the findings are also discussed. © 2009 Elsevier B.V. All rights reserved

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“…Four of our five hypotheses are therefore supported by cointegration analysis. FDI flows into the Czech economy have been affected by merger and acquisition activity on an international level which, according to Brada, Kutan and Yigit (2004) influenced the Czech Republic's SM. In the Brada, Kutan and Yigit (2004) study, this relationship did not materialize, possibly because they did not use cointegration as an adjustment for the short-term effects of merger and acquisition activity on the overall stock market.…”

Section: Resultsmentioning

confidence: 99%

The Financial Setting for FDI Inflows into The Czech Republic and Slovakia

Jankovic¹,

Yatrakis²

2011

IBR

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This study examines the relationship between foreign direct investment in the Czech Republic and Slovakia and such potentially explanatory factors as trade flows, measures of economic and financial stability, and country risk. The authors find that as the Czech and Slovak Republics progress toward market economies, some policy points to consider include: transparency of markets, economic systems, social and political organizations; an increase in commerce and investment, which makes reversals of reforms less likely and the condition of financial factors that contribute to increased investment.At this time, these transition economies possess many of the resources needed for development, such as educated labor forces, an entrepreneurial orientation among the citizens, and available land. Yet, another key resource, capital, is in short supply in the region. An important precondition to obtaining capital is the demonstration of economic and political stability (see Kyrkilis and Pantelidi 2006). By improving the transparency of their legal, banking, and capital markets sectors, the Czech and Slovak Republics can accelerate their progress toward free markets and democratic societies.Our research finds that relationships exist among country risk ratings, financial market variables, and expected returns in this region; such relationships can be useful in developing policies to improve capital markets and attract external capital. The importance of building upon other researchers in this field updates that research plus incorporates new aspects of issues now developing. This research topic is fluid and demands continuous review and testing.

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The Effects of Transition and Political Instability on Foreign Direct Investment Inflows: Central Europe and the Balkans

Cited by 41 publications

References 53 publications

Illicit money flows as motives for FDI

Illicit money flows as motives for FDI

European integration, productivity growth and real convergence: Evidence from the new member states

The Financial Setting for FDI Inflows into The Czech Republic and Slovakia

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