Foreign direct investment and economic development of EU7 countries

Abstract

One of the main reasons why Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovak Republic (hereafter – EU7 countries) joined to European Union was expectation to receive foreign direct investment from the old Member States of European Union (hereafter – EU15 countries).

As foreign direct investor promotes the economic activity in the investment recipient country, foreign direct investment is perceived as a tool to enhance economic growth.

The purpose of this paper is to research the effect of foreign direct investment on the economy of EU7 countries. In the paper relationship between economic structure of EU7 countries and foreign direct investment flow in particular sectors is examined. Results show that there is a positive interaction of developmed manufacturing sector in EU7 countries and foreign direct investment flow in the sector. As EU7 countries mainly have developed low value added manufacturing those sectors receive major part of foreign direct investment.