article · Future Business Journal
Foreign direct divestment is examined in relation to economic growth across Central Europe and the Baltic states from 2003 to 2024. Using regional aggregate data, the analysis evaluates whether foreign capital withdrawal influences gross domestic product and whether this dynamic altered following the COVID-19 pandemic. Findings show that foreign direct divestment is linked to weaker short-run economic growth, likely operating via productive capacity reduction, capital withdrawal, and increased uncertainty. However, the relationship shifted significantly after 2020, suggesting that post-pandemic divestment may increasingly reflect corporate restructuring, adjustment, and capital reallocation rather than purely negative contraction. In addition, domestic capital formation and unemployment levels remain vital factors in shaping regional growth dynamics, whereas foreign direct investment inflows did not demonstrate a robust statistical connection to growth in the primary model. Divestment is thus framed as a distinct macroeconomic process rather than simply inverted investment.
Understanding the impact of foreign direct divestment helps policymakers and analysts evaluate the true consequences of capital flight and multinational restructuring. Rather than treating divestment merely as the reverse of foreign investment inflows, recognising its distinct mechanisms, such as capacity reduction and resource reallocation, provides clearer guidance for managing post-crisis economic transitions and domestic resilience.
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Abstract This paper investigates how foreign direct divestment (FDD) shapes economic performance in Central Europe and the Baltics within the broader CEE classification over the period 2003–2024. While the literature has extensively examined the growth effects of foreign direct investment inflows, less is known about the macroeconomic consequences of foreign capital withdrawal and multinational restructuring. Using regional aggregate data from Invest Europe and the World Bank, the study assesses whether FDD affects GDP growth and whether this relationship changed after COVID-19. The results indicate that FDD is associated with weaker short-run growth performance, supporting the view that divestment may operate through capital withdrawal, productive capacity reduction, and uncertainty channels. However, the post-COVID interaction suggests a significant change in the FDD-growth relationship after 2020, pointing to the possibility that divestment in the post-pandemic period may also reflect restructuring, capital reallocation, and adjustment processes. The findings further show that domestic capital formation and unemployment remain important determinants of growth dynamics, while FDI inflows do not display a statistically robust association with growth in the preferred specification, a result that should be interpreted cautiously given the aggregate nature of the variable and the limited sample size. The paper contributes to the emerging literature on foreign direct divestment by treating it as a distinct macroeconomic phenomenon rather than merely the reverse of FDI inflows.
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DOI: 10.1186/s43093-026-00965-9
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