Does FDI Inflow Accelerate Export Performance in Countries in Transition? An empirical analysis of European Countries in Transition

The main objective of this study is to examine whether inflows of foreign direct investment(FDI) enhanced export performance in European transition countries during the period2000 to 2015. For this purpose, we employ different econometric techniques includingmodels of fixed effects, random effect, the Hausman-Taylor instrumental IV, and thegeneralized method of moment system (GMM). The findings show that FDI inflows had apositive effect on export performance in European countries in transition. Other factorsthat show positive effects on the level of export are investments (gross capital formation as apercent of GDP) and the trade liberalization index (TLI). The factors that show a negativeeffect regarding exports are real GDP and the real exchange rate (RER). The study suggeststhat European countries in transition develop strategies that improve the level ofinfrastructure, human resources, governance and the business environment. Since FDIinflows have a positive effect on the level of export, the results suggest that governmentpolicymakers should pursue a course of action that leads to institutional improvements,provides more incentives for foreign companies, and implements new and appropriatereforms to attract more FDI inflows, which in turn lead to higher export growth.Keywords: FDI, trade, transition countries, dynamic panel dataJEL Classification: E2, F1, F2