FDI and income convergence in the Central European transition countries,

Abstract

Foreign direct investment generates a number of benefits, especially for developing and transition countries, and, therefore, it is a major factor in economic development. Some of the advantages of foreign direct investments are technology and knowledge spillover, increased employment and competition and improved balance of payments. The aim of this research is examining the effect of foreign direct investment on income convergence of Central European transition countries. Regression analysis is used to test this effect. The results indicate that Central European transition countries with a higher inflow of foreign capital achieve more propulsive convergence towards the average income of developed countries of the European Union. The results of the research can be useful for the economic policy makers of transition countries.