Sectoral Composition of Foreign Direct Investment and External Vulnerability in Eastern Europe

30 Pages Posted: 12 Jun 2011

See all articles by Yuko Kinoshita

Yuko Kinoshita

International Monetary Fund (IMF); University of Michigan, William Davidson Institute; Centre for Economic Policy Research (CEPR)

Date Written: May 2011

Abstract

In the run up to the global crisis, countries in Central Eastern and Southeastern Europe attracted large capital inflows and some of them built up large external imbalances. This paper investigates whether these imbalances are linked to the sectoral composition of FDI. It shows that FDI in the tradable sectors leads to an improvement of the external balance. We also find that the countries with large market size, good infrastructure, greater trade integration, and educated labor force are more likely to receive more FDI in the tradable sectors.

Keywords: Balance of trade, Capital inflows, Cross country analysis, Current account balances, Current account deficits, Eastern Europe, Export performance, Exports, Foreign investment, Trade integration

Suggested Citation

Kinoshita, Yuko, Sectoral Composition of Foreign Direct Investment and External Vulnerability in Eastern Europe (May 2011). IMF Working Paper No. 11/123, Available at SSRN: https://ssrn.com/abstract=1861793

Yuko Kinoshita (Contact Author)

International Monetary Fund (IMF) ( email )

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University of Michigan, William Davidson Institute

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Ann Arbor, MI 48109-1234
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Centre for Economic Policy Research (CEPR)

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United Kingdom

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