Foreign Investment and Transition in Central/Eastern Europe along the Phase Curve

An empirical neoclassical growth model reveals that foreign investment incrementally contributed to the economic transition of 27 countries in Central and Eastern Europe during the transition period 1989 to 2003. The model departs from the theoretical and applied growth literatures by estimating the phase equation of a partial adjustment model of growth that implicitly includes foreign investment. The pooled estimate reveals an early phase of economic growth that will take generations, aside from a few positive outliers, to approach the status of the developed countries.