Foreign Direct Investment and Economic Growth in Transition Economies - Empirical Evidence from the Commonwealth of Independent States and a comparison with Central and Eastern Europe and the Baltic States

In the past 2 decades former communist states have transitioned from a centrally planned economy to a market economy, some more successful than others. As a result a number of these states have seen an increase in foreign direct investment and simultaneously have experienced economic growth. Other states, however, lag behind. This paper identifies and assesses the different determinants of foreign direct investment and as a result the relation these determinants have with a country’s economic growth. Using a fixed effects model, no evidence was found that the former communist states in the Commonwealth of Independent States are significantly different in their ability to attract foreign direct investment compared to countries in the Central and Eastern European and Baltic region. Furthermore, with a fixed effects model, it was found that membership of the EEU has a positive relationship with foreign direct investment. Finally, another fixed effects model determined that foreign direct investment has a positive effect on a country’s economic growth in the Commonwealth of Independent States.