The influence of foreign direct investment on foreign trade in the visegrad countries from 2001 to 2011

Abstract

Objective: This paper is an attempt to settle the controversy around the motives connected with investing in the Visegrad countries and the verification of the hypothesis that FDI makes a significant impact on V4’s foreign trade. Research Design & Methods: The relationship between the value of foreign direct investment in V4 countries in 2001-2011 and the geographic structure of trade in two directions: Exports and imports, will be examined. The paper includes an analysis of the influence of FDI on foreign trade (the linear gravity model was used). Findings: FDI strongly influences the volume of Polish, Slovak and Czech exports and imports; only in the case of Hungary does FDI not stimulate foreign trade, the value of imports and exports is correlated with value of FDI inflow, as far as statistics are concerned, there is a significant inter-dependence between the inflow of FDI to V4 countries and the geographical and commodity pattern of their foreign trade. Implications & Recommendations: The scale and structure of FDI in the V4 requires further study. It is also important to examine the number and value of greenfield investment projects, as well as mergers and acquisitions (brownfield investment). Contribution & Value Added: This article attempts a holistic approach to the relationship between capital inflows in the form of foreign direct investment (FDI) and foreign trade of the host country, both export and import.