Foreign Direct Investment and Economic Growth in Central and Eastern Europe: Systems Thinking, Feedback Loops, and Romania’s FDI Premium

Foreign direct investment (FDI) has often been cast as a straightforward engine of growth, yet its record across Central and Eastern Europe tells a more tangled story where outcomes hinge on the interplay of education, governance, and the timing of external shocks. This study embeds fixed effects panel econometrics within a systems framework, treating FDI as a subsystem of socio-economic dynamics. Using a long-run panel of eleven economies from 2000 to 2023, the analysis models path dependence and regime shifts through interaction terms and period-specific dummies set against a systems-thinking backdrop. The analysis shows that for the average CEE economy, FDI’s contribution has waxed and waned: it dragged on growth during the early transition years (2000–2007), settled into a neutral role after the global financial crisis, and proved unpredictable in the pandemic era. Romania stands out, however, with a marked “FDI premium” quantified as approximately 0.7 pp of growth per pp of FDI that seems to stem from reinforcing loops between rising tertiary enrolment and productivity spillovers. Mapping these feedbacks brings to light virtuous circles where human capital and resilience make or break the benefits of foreign capital. The policy message is plain: nurture the positive loops through investment in skills and firm linkages, keep institutions nimble enough to adapt, and watch for early warning signs of systemic strain.