# The interaction between trade and FDI: the CEE countries experience

**Authors:** Claudiu Tiberiu Albulescu, Daniel Goyeau  
**arXiv:** [1609.02334](https://arxiv.org/abs/1609.02334)  
**Date:** 2016-09-08  
**Summary page:** https://www.summarizepaper.com/en/paper/1609.02334v1/

## Key points

- Commercial integration of Central and Eastern European (CEE) countries within the EU has slowed down since the financial crisis.
- The study aims to identify factors that support this integration process.
- FDI can influence trade intensity, but previous studies on CEE countries have presented mixed evidence.
- The objective of this research is to assess intra-integration among CEE countries.
- Outward FDI plays a significant role in sustaining commercial integration among CEE countries.
- Inward FDI does not have a significant effect on integration.
- There is evidence of a complementarity effect between trade and FDI across all cases examined in this study.
- Policymakers are encouraged to promote outward FDI towards neighboring countries to enhance commercial integration.

## Summary

This paper examines the interaction between trade and foreign direct investment (FDI) in the Central and Eastern European (CEE) countries, specifically focusing on the Czech Republic, Hungary, Poland, and the Slovak Republic. The authors note that while commercial integration of these countries within the European Union (EU) had gained momentum prior to the financial crisis, it has slowed down since then. Therefore, there is a need to identify factors that support this integration process. The study builds upon recent findings in new trade theory which suggest that FDI can influence trade intensity. However, previous studies investigating this relationship for CEE countries have presented mixed evidence and mainly focused on their integration with older EU member states. In light of this background, the objective of this research is to assess intra-integration among CEE countries. To achieve this objective, the authors employ a panel gravitational model for bilateral trade and FDI. They consider interactions between each country in their sample (Czech Republic, Hungary, Poland, and Slovak Republic) with the other three countries as well as with their three main commercial partners within the EU. The analysis covers different aspects of the trade-FDI nexus using fixed effects models, random effects models, and instrumental variable estimators over the period 2000-2013. The results indicate that outward FDI plays a significant role in sustaining commercial integration among CEE countries. On the other hand, inward FDI does not have a significant effect on integration. Additionally, there is evidence of a complementarity effect between trade and FDI across all cases examined in this study. This complementarity effect is particularly strong for historical trade partners of CEE countries. Based on these findings, policymakers in CEE countries are encouraged to promote outward FDI towards neighboring countries as a means to enhance commercial integration. Overall, this research contributes to understanding the dynamics between trade and FDI in CEE countries and provides insights into policies that can further support their integration within the EU.