The color of money: The effects of foreign direct investment on economic growth in transition economies |
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Authors: | Minsoo?Lee Email author" target="_blank">MoonJoong?TchaEmail author |
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Institution: | (1) Department of Economics, American University of Sharjah, United Arab Emirates;(2) Department of Economics, The University of Western Australia, Crawley, WA, Australia |
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Abstract: | During the initial phase of transformation to a market economy many of the Eastern European and Baltic countries experienced
an initial decline of output. This paper explains, both theoretically and empirically, why they experienced negative growth
initially, and how some of them started to get over and recorded positive growth recently. As a vehicle to transfer technology
and managerial skills to the transition economies, as well as to increase capital work, foreign direct investment (FDI) is
regarded important. Production function with a low elasticity of substitution between two inputs is employed to capture the
dynamic short-run movement of these economies. Cross-sectional and panel data, are utilized to analyze the short-run dynamic
movement of equilibrium paths of transformation to a market economy. The findings confirm that total factor productivity and
GDP in the region grew together with the inflow of FDI, and the marginal contribution of FDI to growth is greater than that
of domestic investment. JEL no. O50, P39, F21
This project is financially supproted by the ARC Small Grant, Department Research Grant, Department of Economics, UWA and
Division Research Grant, Commerce, Division, Lincoln University. |
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Keywords: | Foreign direct investment total factor productivity transition economies |
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