Relationship between Foreign Direct Investment and Domestic Investment in Selected Countries of Central and Eastern Europe

Effects of foreign direct investment on domestic countries have been one of the most discussed topics in post-communist countries. Privatisation started in the 90s in countries of Central and Eastern Europe. From this point of view the foreign direct investments played an important role in region. Foreign direct investments are generally considered as one of the factors with positive influence on the economic development of countries in which this investments flow. In evaluating the impact of foreign direct investment on development, however, a key question is whether foreign direct investment crowd in domestic investment, or foreign direct investment crowd out domestic investment. This paper focuses on research of foreign direct investment effects in Central and Eastern Europe. The aim of the paper is to examine the effect of crowding in or crowding out of the domestic investments by foreign investors in host countries. Annual data were tested with panel regression for the period 1993 – 2012. Detected results indicate that in specified areas, the effect of extrusion of domestic investments prevails.