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Foreign direct investment financing of capital formation in central and eastern Europe

Author

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  • Libor Krkoska

    (European Bank of Reconstruction and Development)

Abstract

This paper looks at the relation between foreign direct investment (FDI) and gross fixed capital formation in transition countries as well as other sources of capital formation financing, namely debt financing, capital market financing and subsidies. The paper shows that capital formation is positively associated with FDI, along with domestic debt and capital market financing, but negatively correlated with stock market liquidity. There is no statistically significant link between capital formation and foreign credit or subsidies. The paper also shows that FDI is a substitute for domestic credit but is complementary with foreign credit and privatisation revenues.

Suggested Citation

  • Libor Krkoska, 2001. "Foreign direct investment financing of capital formation in central and eastern Europe," Working Papers 67, European Bank for Reconstruction and Development, Office of the Chief Economist.
    • Handle: RePEc:ebd:wpaper:67
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    More about this item

    Keywords

    foreign direct investment; gross fixed capital formation; transition economies;
    All these keywords.

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • P27 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Performance and Prospects
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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