The Impact of Foreign Direct Investment on Economic Growth: The Case of Selected European Countrie

This report was written as a graduate thesis that is required for completion of Master's program. The goal of the paper is to determine the impact of FDI on economic growth in Central, Eastern and Southern European region. The research was initiated with the study of available literature and followed by regional analysis of FDI and growth developments, current trends of FDI in Europe as well as by a case study that was focused on government incentive policies used to attract foreign investments. FDI in Europe reached its peak in the pre-crisis period and experienced sharp drop in 2009. The investment flows recovered in 2011 and fluctuated since then. The outlook of Europe's FDI attractiveness is uncertain due to Brexit and worsened relations in the European Union. Nevertheless, there is a continuous interest of governments to develop FDI incentives and enhance their business environment in search for new investors. The statistical assessment used in the research consisted of Granger causality test and panel data analysis. The first test confirmed one way causality relationship between FDI and GDP per capita growth. The outcome of the analysis indicated positive linear relationship between FDI and economic growth with the use of eight control variables, however, the magnitude of the impact is vague. The FDI benefits are primarily realized through transfer of technology, therefore, the less significant result could be attributed to the narrower technological gap between the researched region and the source countries.