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Recent studies of developing countries have suggested that the effectiveness of foreigndirect investment FDI as spur to econo mic growth depends on the availability of -human capital-or skilled labour in a host country. In other words, it is primarily the synergy between FDI andhuman capital — rather than FDI itself — that acts as a strong stimulant to growth. Since manytransition economies such as Ukraine have abundant human capital, this implies that policies thatencourage FDI may be very beneficial in facilitating economic restructuring and stimulatinggrowth. This paper provides a thorough empirical investigation of this issue by examining theexperience of Ukraine and other transitional economies.The paper provides an overview of Ukraine’s experience with FDI and growth beforesystematically analyzing the connection between these variables for a panel of transitioneconomies. While the paper finds deficiencies in earlier work examining the synergy betweenFDI and human capital, it finds interesting evidence that is consistent with the synergyhypothesis for transition economies. Further, the analysis also suggests that there is acomplementary — rather than substitute — relationship between FDI and domestic investment.Thus, the presence of FDI may provide new learning opportunities for those making domesticinvestments and visa versa. The possibility that it is not large flows of FDI that cause higheconomic growth rates, but strong growth that acts as a magnet for FDI is also investigated.While the paper shows that there is little empirical evidence of such reverse causation intransition economies, it also reveals that there is little evidence that FDI stimulates economicgrowth beyond the current year. This lack of persistence in the benefits of FDI in transitioneconomies suggests that there may be room for policy initiatives to increase the efficacy ofFDI.

Item Type: MPRA Paper -

Original Title: Foreign Direct Investment and Growth in Transition Economies-

Language: English-

Keywords: foreign direct investment, spillovers from FDI, human capital complementarities, transition economies, growth-

Subjects: P - Economic Systems > P3 - Socialist Institutions and Their Transitions > P33 - International Trade, Finance, Investment, Relations, and AidE - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; CapacityF - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital MovementsF - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies-

Autor: Aleksynska, Mariya


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