Foreign divestment and domestic investment in Eastern European countries

Divestment is an inevitable decision by businesses including multinationals. Its implication for domestic investment has not been investigated especially in Eastern European countries. We used data on 23 Eastern European countries from 1991 to 2019 to assess the effect of outward and inward foreign direct divestment on domestic investment. We found that both outward foreign direct investment and inward foreign direct investment as well as their corresponding divestments crowd out domestic investment. The impact of outward foreign direct investment and its divestment crowd out domestic investment more than the crowding out effect of inward foreign direct investment and its divestment. The results of this study call for efforts to attract and retain inward foreign direct investment. These should build the respective Eastern European economies to an extent that the outward foreign direct investment and their divestment will not impact domestic investment as much as has been found.