ESTIMATING TECHNICAL PROGRESS IN CENTRAL AND EASTERN EUROPE. WHAT ROLE FOR FDI?

Abstract

Technical progress is a key factor in economic growth, mainly due to its productivity enhancement. It is a fact that most innovation and new technologies are created in developed countries. International trade and FDI are the main channels for technology transfer. Our objective is to determine the role of FDI in technical progress. In this paper, we start with two questions: is there evidence of significant contribution of technical progress to economic growth? And if there is, what is the role of FDI in technical progress? Using a production function approach, we estimate the TFP and we regress it on the stock of FDI, in a panel framework. We find evidence of positive correlation.

Keywords

• technical progress
• Solow residual
• FDI