Sectoral Composition of Foreign Direct Investment and External Vulnerability in Eastern Europe

June 1, 2011

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

In the run up to the global crisis, countries in Central Eastern and Southeastern Europe attracted large capital inflows and some of them built up large external imbalances. This paper investigates whether these imbalances are linked to the sectoral composition of FDI. It shows that FDI in the tradable sectors leads to an improvement of the external balance. We also find that the countries with large market size, good infrastructure, greater trade integration, and educated labor force are more likely to receive more FDI in the tradable sectors.

Subject: Balance of payments, Capital controls, Capital inflows, Exports, Foreign direct investment, International trade, Trade balance

Keywords: Baltics, Capital controls, Capital inflows, Central Eastern Europe, country, export, export-platform FDI, Exports, external vulnerability, FDI in the nontradable sector, FDI inflow, FDI stock, foreign direct investment, share, Southeastern Europe, tradable FDI, Trade balance, Western Europe, WP

Pages:
29
Volume:
2011
DOI:
https://doi.org/10.5089/9781455263400.001
Issue:
123
Series:
Working Paper No. 2011/123
Stock No:
WPIEA2011123
ISBN:
9781455263400
ISSN:
1018-5941

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