Direct and indirect effects of FDI in emerging European markets: A survey and meta-analysis

We review a large body of literature dealing with the effects of Foreign Direct Investment (FDI) on economies during their transformation from a command economic system toward a market system. We report the results of a meta-analysis based on the literature on externalities from FDI. The studies on emerging European markets covered in our survey report direct and indirect FDI effects weakening over time, similarly as in other FDI destination countries. This is imputable to a publication bias that is detected and to the fact that more sophisticated methods and more controls can be used once a sufficient time span is available. Panel studies are likely to find relatively lower spillover effects. The choice of the research design (definition of firm performance and foreign firm presence) matters. More specific to the sampled studies is the role played by forward and backward spillovers which dominate other channels in driving FDI externalities.

► We review the literature dealing with the effects of Foreign Direct Investment (FDI) on transformation economies. ► We perform a meta-analysis to identify externalities from FDI. ► We show direct and indirect FDI effects weakening over time, a feature imputable to a publication bias and methodologies used. ► Forward and backward spillovers dominate other channels in driving FDI externalities.