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  • Thumbnail for Absorptive Capacities and the Impact of Foreign Direct Investment on Economic Growth: Case of Post-communist Transition Economies
    Absorptive Capacities and the Impact of Foreign Direct Investment on Economic Growth: Case of Post-communist Transition Economies by Enkhtur, Bayarmaa

    A large part of the growth gap in post-communist transition economies can be attributed to how well each country has internalized the inward capital injections from foreign direct investment (FDI) and its accompanying positive spillovers into tangible and sustainable economic growth. On the one hand, most of Central and Eastern European countries have achieved a rapid economic growth from FDI. On the other hand, countries like Georgia, Mongolia, and Tajikistan, are still struggling to use FDI to sustainably expand economically. Thus, this study hypothesizes that the economic successes of transition economies today were largely determined by the individual FDI absorptive capacities. Employing a panel data for a sample of 32 post-communist transition economies, this study finds that the most significant absorptive capacity factor of FDI is human capital. In support of past literature, the study also finds a positive, significant relationship between economic growth and R&D, development of financial and institutional systems, and openness to trade.