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Fdi And Financial Development As Determinants Of Economic Growth For V4 Countries

Author

Listed:
  • Anastasiya Gural

    (Department of World Economy and International Economic Relations, Odesa I.I. Mechnikov National University, Ukraine)

  • Iryna Lomachynska

    (Department of Economic Theory and the History of Economic Thought, Odesa I.I. Mechnikov National University, Ukraine)

Abstract

The purpose of the paper is to analyze the influence of foreign direct investment (FDI) and financial development (qualitative and quantitative changes in the financial system and its components) on the dynamics of economic growth in V4 countries. In modern conditions, the financial system is a transfer mechanism of the business cycle and therefore affects the structure and dynamics of foreign direct investment, and especially the efficiency of their assimilation. The subject of the survey is the financial development and the FDI flows impact on economic growth. Methodology. The survey is based on the evaluation of the equation, which is the Barro regression specification. This model helps to find out the impact of the volume and depth of financial system on the dynamics of economic growth. GDP growth per capita is used as an indicator of economic growth. The paper proposes modeling results for the group countries (Hungary, Poland, Slovak and Czech Republic). Static data have been used for the period from 1992 to 2016. Results. FDI has an important role in reforming and developing the national economies of the countries in Visegrad Group. However, today, there is a problem with the stability of FDI inflows and with the efficiency of their development, which negatively affects the dynamics of economic growth. An important factor is the insufficient level of national financial system development of the Visegrad countries. All countries of the group have bank-oriented financial systems that are heavily dependent on foreign capital. At the same time, governments pay particular attention to the stability of banking sectors and set high standards for their sustainability. This holds back the financial development of the national economies of the Visegrad Group. At the same time, regression models for all countries confirm the importance of financial development in economic growth. The most important for V4 countries is to increase the size of the financial sector. Simulation shows that the stock market has the biggest positive impact on economic growth. The creation and development of the regional financial market were proposed for the countries in the Visegrad Group. Perhaps such an offer will not be in Hungarian interests as it has a different financial system and investment policy than other countries in V4 Group. However, other CEE and former Soviet countries will be able to join the regional market in the future. The obtained results should be taken into consideration when developing the macroeconomic policy of the Visegrad Group countries, implementing the policy of financial sectors development of these countries, and improving the policy of attracting foreign direct investment.

Suggested Citation

  • Anastasiya Gural & Iryna Lomachynska, 2017. "Fdi And Financial Development As Determinants Of Economic Growth For V4 Countries," Baltic Journal of Economic Studies, Publishing house "Baltija Publishing", vol. 3(4).
    • Handle: RePEc:bal:journl:2256-0742:2017:3:4:10
    DOI: 10.30525/2256-0742/2017-3-4-59-64
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    References listed on IDEAS

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    1. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 717-737.
    2. Niels Hermes & Robert Lensink, 2003. "Foreign direct investment, financial development and economic growth," Journal of Development Studies, Taylor & Francis Journals, vol. 40(1), pages 142-163.
    3. Andrés Alegría & Rodrigo Alfaro & Felipe Córdova, 2017. "The impact of warnings published in a financial stability report on loan-to value ratios," BIS Working Papers 633, Bank for International Settlements.
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    Cited by:

    1. Nokulunga Mbona, 2022. "Impacts of Overall Financial Development, Access and Depth on Income Inequality," Economies, MDPI, vol. 10(5), pages 1-23, May.
    2. Mihaela Simionescu & Adam Wojciechowski & Arkadiusz Tomczyk & Marcin Rabe, 2021. "Revised Environmental Kuznets Curve for V4 Countries and Baltic States," Energies, MDPI, vol. 14(11), pages 1-15, June.
    3. Mihaela Simionescu & Carmen Beatrice Păuna & Mihaela-Daniela Vornicescu Niculescu, 2021. "The Relationship between Economic Growth and Pollution in Some New European Union Member States: A Dynamic Panel ARDL Approach," Energies, MDPI, vol. 14(9), pages 1-17, April.

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    More about this item

    Keywords

    economic growth; foreign direct investment; financial system; financial development; countries of V4 Group;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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