THE INTERDEPENDENCE OF GDP PER CAPITA AND FOREIGN DIRECT INVESTMENT IN THE TRANSITIONAL ECONOMIES OF CENTRAL AND EASTERN EUROPE

1. IntroductionAn important aspect of the former is the possibility of reintegration into Europe symbolised for many countries by prospective membership of the European Union (Grabbe, Hughes, 1998; Mayhew, 1998). Integration into the world economy, notably through trade and capital flows, is a crucial and related element of the latter. Foreign direct investment (FDI) is a particularly important element of economic integration, because it opens possibilities for accelerated growth, technical innovation and enterprise restructuring, as well as capital account relief (Garibaldi et al, 1999; Holland, Pain, 1998). EU membership can be viewed as a determining element of the operating business environment, and this may directly influence the rate of FDI flows.Most studies generally indicate that the effect of FDI on growth depends on other factors such as the degree of complementarity and substitution between domestic investment and FDI, and other state-specific characteristics. Buckley, Clegg, and Wang (2002) argue that the extent to which FDI contributes to growth depends on the economic and social conditions in the recipient state. States with a high rate of savings, an open trade regime and high technological levels would benefit from increased FDI to their economies. However, FDI may have a negative effect on the growth prospects of the recipient economy if they result in substantial reverse flows in the form of remittances of profits, and dividends and/or if the multinational corporations (MNCs) obtain substantial or other concessions from the host state. Bengoa and Sanchez-Robles (2003) argue that in order to benefit from long-term capital flows, the host state requires adequate human capital, sufficient infrastructure, and economic stability and liberalized markets.In the literature devoted to the influence of FDI on economies, the research on the determinants of the geographical pattern of FDI distribution usually focuses on the factors that determine why some states manage to draw FDI in higher levels than some other states. However, not many studies deal with the GDP per capita as a determinant why some states (i.e. their economies) are more attractive to the FDI than others when it comes to the size of the economy itself. This paper studies the interdependence of the gross-domestic product (GDP) per capita and foreign direct investments (FDI) in transitional (i. e. postcommunist) economies of Central and Eastern Europe. The economies of Central and Eastern Europe were picked and grouped as follows: 11 current post-communist ELI member states (Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia), six states of the current Western Balkans (Albania, BosniaHerzegovina, Kosovo, Macedonia, Montenegro, Serbia), and three Eastern European states, members of the Commonwealth of the Independent States (Belarus, Moldova, Ukraine) . Among the states studied, we have equally studied the EU members from Central and Eastern Europe, as well as the non-EU members. By using two variables, FDI and GDP per capita, this research will determine how much FDI correlate to the standard of living represented through GDP per capita for each state surveyed. Research results will show if FDI and GDP per capita are positively correlated, which represents our research hypothesis no.l and if that correlation is more significant in non-EU states, which represents our hypothesis no. 2. In order to see the correlation between the growth of the GDP per capita (taken from the web pages of the World Bank) and the FDI for each year surveyed, Pearson's correlation matrix of GDP per capita and FDI for each state was used and a comparison of median correlation results between the mentioned groups of states was done. The period surveyed was between 1994 and 2013. The data used were collected from webpages of the World Bank. We have tried to find similarities and differences between these two groups of states in order to determine the influence of EU membership on FDI and how it correlates with the size of the state's economy. …