FOREIGN CAPITAL INFLOW - THE EFFECTS ON NATIONAL SAVINGS, DOMESTIC INVESTMENTS AND BALANCE OF PAYMENTS OF COUNTRIES IN TRANSITION IN CENTRAL AND EASTERN EUROPE

This paper analyses the effects of the gross foreign capital infl ows on the national savings and domestic investments. The hypothesis put forward is that the foreign capital infl ows into transition countries increase, on average, the levels of national investments but not the national savings levels. The panel data analysis with so called fixed effects method has been applied to 11 transition countries (CEEC) over a ten-year period. The dependant variables are the national investments and savings. Foreign capital infl ows into transition countries have had a positive “crowding-in effect” on the national investment. The strongest and statistically most signifi cant correlation has been found for the other foreign investment variable (credits). The FDI have also been shown as signifi cant although with weaker correlation. Portfolio investment inflows have no significant influence on national investments. As opposed to the investment effects, total foreign capital inflow and its individual components turned out to be insignifi cant in explaining the national savings in transition economies. This result implies that national and foreign savings are not substitutes in transition countries. Therefore, limiting the access to foreign fi nancing would decrease national investments without increasing the level of national savings.