School of Economics

2005 Discussion Papers

School of Economics Discussion Paper 05/09
November 2005

The Interplay Between Foreign Direct Investment, Security and European Integration: The Case of the Central and Eastern European Countries
Carmen Raluca Stoian and Roger Vickerman

School of Economics
University of Kent at Canterbury


A bi-directional relationship between FDI and economic reforms in ten Central European countries is tested, along with the role of the EU in breaking a potential vicious circle of insecurity, little investment, slow reforms, low prospects of EU membership and hence high insecurity. Using panel data regressions and a system of simultaneous equations, we find evidence that the prospect of EU membership has enhanced FDI in the less reformist candidates and that trade integration and increased EU financial assistance have improved FDI in the CEECs.

JEL Classification: F2, C2, C3, P26

Keywords: Foreign direct investment determinants, economic transition, economic reforms, Central and Eastern Europe

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