Off-shoring’s Impact on Economic Growth of Developing Countries in Central and Eastern Europe.

Abstract: This paper investigates the impact of the increased off-shoring in business and manufacturing to Central and Eastern Europe (CEE). Since the off-shoring process is a relatively new activity, there is no precise definition of how to measure its direct impact on a country’s economy. Thus the study is dedicated to identify the main economic factors associated with off-shoring and to examine their impact on the economic growth. The study has used a dataset on economic characteristics for 9 CEE countries (Estonia, Latvia, Lithuania, Poland, Czech Republic, Hungary, Romania, Slovenia, Croatia) during the time period of 2000 - 2008. After applying fixed and random effects econometric model to the panel data for 9 countries, empirical results showed that FDI inflows that enter the country with offshoring processes have a positive influence on the GDP of those countries. Additionally, exports of manufactured products and ICT services are also shown to have a positive influence on GDP. At the same time, indigenous investments and private consumption do have a stronger impact on economic growth compared to foreign direct investments and exports, respectively.