How Does Economic Integration Affect Progress along the Investment Development Path? A Case Study of EU Member vs. Non-Member Countries from Eastern Europe

Abstract

Objectives A number of studies have dealt with the effects of economic integration on foreign direct investment, however without a comprehensive and simultaneous analysis of the overall positioning of these countries along the investment development path (IDP). In the current paper, a comparative analysis is conducted of IDPs of four Eastern European countries, both members and non-members of the European Union. The purpose of the paper is to determine the effect of economic integration on foreign direct investment (FDI) flows and on the movement of these Eastern European economies through their IDP stages. Material and methods An attempt is made to identify the positioning of the sample countries on the IDP, using trend estimation depicting the relationship between net outward investment (NOI) position per capita and gross domestic product (GDP) per capita, as well as detailed descriptive data on inward and outward FDI stocks and flows, subsequently supported with econometric analyses. Results While the findings point to a rather ambiguous effect of European Union (EU) membership on FDI growth and IDP trajectories, integration tends to exert a stronger effect on outward FDI than on inward FDI of member countries. Conclusions The study’s findings reveal the need to add new theoretical considerations to the interface between economic integration and the IDP model as well as formulate certain policy implications resulting therefrom.

Keywords

• foreign direct investment
• economic integration
• economic transformation
• eastern europe
• econometric analysis