Does Economic Convergence with the European Union Mean More FDI Flows to an Economy? Analysis of Five Central and Eastern European Countries

Abstract

Purpose – In this paper we analyze the relationship between economic convergence with the European Union (EU) and foreign direct investment flows to five EU countries (Bulgaria, Czech Republic, Poland, Romania and Hungary) in the period 2001–2010, in order to determine if the process of economic convergence with the EU level influences FDI inflows in these economies. The paper covers an important research question and reveals empirical findings for the new EU member states.

Methodology – This paper uses a quantitative analysis based on a convergence index creation, and also an exploratory data analysis in order to determine how economic convergence with the EU level influences FDI inflows. The economic convergence index is made up of two equal parts, more exactly a real convergence index and a structural convergence index, and is computed by comparison with the EU average.

Findings – The study does not provide us with a clear answer to our question regarding the influence of the convergence process on the level of FDI attracted by a country. We report a tight relationship between convergence index and FDI inflows in Bulgaria, but quite divergent evolutions of the two variables in the case of Hungary. For the other three countries the indicators fluctuate a lot.

Originality – The main contribution of the paper is represented by additional empirical evidence on economic convergence and FDI inflows for the new EU member states. The empirical research in this area is at an early stage and even though the existing stage does not provide us with accurate conclusions, the theme remains important for the business environment.

Another important contribution of the study consists of creating an economic convergence index that is composed by both real and structural indexes and that offers valuable information regarding the economic evolution of the new EU member states.

Citation

Alexe, I. and Flavia Tatomir, C. (2012), "Does Economic Convergence with the European Union Mean More FDI Flows to an Economy? Analysis of Five Central and Eastern European Countries", Van Tulder, R., Verbeke, A. and Voinea, L. (Ed.) New Policy Challenges for European Multinationals (Progress in International Business Research, Vol. 7), Emerald Group Publishing Limited, Leeds, pp. 279-303. https://doi.org/10.1108/S1745-8862(2012)0000007015