Opium for development: Marxist analysis of foreign direct investment in the Open Balkan
Description
The outcome variables used in this study represent indicators of economic dependency developed by Marxist scholars, in particular investment dependency, the penetration by foreign capital, debt dependence, and dependence on foreign credit. These indicators are complemented with indicators of trade and external balance as well as with indicators of labour force exploitation in line with the preceding discussion. The key explanatory variable uses two metrics for FDI: as FDI net flows and as FDI stocks, both expressed as a share of GDP. It is assumed that FDIs produce no impact on, or are negatively correlated with, the outcome indicators of dependency (contrary to what mainstream economics suggests the FDI outcome should be. This implies that for some variables the relationship may be positive: FDIs are expected to increase the FDI outflows, FDI share of GDI, and total debt service. In addition, we introduce a number of control variables to control for extraneous factors that could otherwise distort the relationship between the explanatory variable and the outcome variables. These include the volume of trade to control for trade openness, total unemployment to control for the reserve army of labour, and good governance measured by control of corruption. In addition, the study uses one dummy control variable, the EU economic cycle measured in the change of GDP where 1 indicates recession or decelerating growth (0 otherwise). The cycle variable is introduced to control for the variation in capital inflows. It is hypothesised that economic downturns in the centre may affect the indicators of dependency by creating incentives for more value extraction to compensate for the declining rate of profit in the centre. To sum up, it is expected that the explanatory variables are either uncorrelated or negatively correlated with the outcome variables, except for control of corruption, which according to conventional theory, should improve the development outcomes and, by definition, mitigate the negative consequences of dependency. Findings show that FDI facilitates value transfer and capital disaccumulation in these countries through increasing external budget deficits, capital outflows, and crowding out domestic investment. Specifically, a 1% increase in FDI inflows correlates with a 0.30% GDP decrease in the external balance, a 0.13% GDP increase in FDI outflows, and a 3.75% reduction in domestic investment's share of total gross domestic investment. The research supports the Marxist dependency theory, indicating that foreign financial flows to peripheral countries aim to extract and transfer economic surplus.
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The study uses panel data for the three countries of the Open Balkan over 20 years between 2003 and 2022 to analyse the relationship between the key outcome variables and FDI. The data on export value index, external balance of goods and services, FDI inflows and outflows, GDP-related statistics, value added in the manufacturing sector, control of corruption index as well as trade statistics were extracted from the World Development Indicators (WDI). The data on FDI stocks come from the UNCTAD Data Centre while the data on labour share of income from the International Labour Organisation’s statistical database ILOSTAT. The data for the EU growth cycle were taken from Eurostat. Where necessary, the data were cross-checked against the national statistics of Albania, North Macedonia, and Serbia. This study uses both static and dynamic panel data methods. Panel data regression is preferred due to its advantages over cross-sectional and time series data, as it allows for the utilisation of all available evidence that cannot be fully captured by either pure cross-sectional or time series analysis.