trade, FDI, EU accession, panel data

FDI Penetration and Net Trade in the EU Accession Countries

This paper explores the link between foreign direct investment and trade in a panel of four countries that will accede to the European Union in 2004: Poland, Hungary, the Czech Republic and Slovenia. We augment standard demand-side export and import equations with a measure of FDI penetration. We compare results based on a panel mean-group estimator with a fixed-effects panel model that allows variation across slope parameters where necessary. We find that FDI penetration has a broadly neutral impact on the trade balance.