THE IMPACT OF EUROPEAN INTEGRATION ON THE DYNAMICS OF FOREIGN DIRECT INVESTMENT IN CENTRAL AND EASTERN EUROPEAN COUNTRIES

Abstract

The article investigates the impact of European integration on the dynamics of foreign direct investment (FDI) in Central and Eastern European countries. Theoretical approaches to the role of integration, macroeconomic, and institutional factors in shaping investment flows are systematized. A comparative analysis of net FDI inflows in 11 Central and Eastern European countries over the period 2004–2025 reveals substantial temporal and crosscountry heterogeneity in investment dynamics. For the econometric assessment, a balanced panel dataset covering 2004–2024 and comprising 231 country-year observations was constructed. The model includes the duration of EU membership, economic growth, trade openness, inflation, government debt, and institutional quality as explanatory variables. Based on a comparison of Pooled OLS, Fixed Effects, and Random Effects models and the results of the Hausman test, the Random Effects model was selected as the preferred baseline specification. The duration of European integration was found to have a statistically significant negative coefficient (β = -0.349; p = 0.019), which does not support the assumption that a longer period of EU membership automatically leads to a continuous increase in annual FDI inflows. At the same time, this result should not be interpreted as evidence of an overall negative effect of European integration on investment attractiveness. Robustness checks demonstrate that after winsorizing extreme FDI observations, economic growth acquires a positive and statistically significant effect, whereas after excluding Hungary from the sample, the coefficient on the duration of EU membership loses its statistical significance. The findings indicate that the relationship between European integration and FDI is complex and heterogeneous over time and depends on country-specific economic characteristics, macroeconomic dynamics, and the ability of national economies to translate integration advantages into favorable conditions for foreign investors. For Ukraine, the results highlight the importance of combining European integration reforms with macroeconomic stability, improvements in the institutional environment, and policies aimed at attracting long-term productive investment. Particular emphasis should be placed on FDI that promotes technological modernization, higher valueadded production, integration into European value chains, and sustainable post-war economic recovery.