The Impact of Foreign Direct Investment on Economic Growth in Eastern Europe: A Panel Data Analysis Evidence of Consumer Expenditure

This research investigates whether foreign direct investment (FDI) translates into improved economic outcomes for citizens of Eastern European countries, as measured by household consumer expenditure trends from 1996 to 2025. Building upon the FDI stock and flow model developed by Kilmek (2024), this research replaces domestic value added (DVA) with consumer expenditure (CS) as the dependent variable and employs a two-way fixed effects panel model across 13 countries. The results indicate that FDI flows and FDI as a percentage of gross domestic product (GDP) have no statistically significant direct effect on consumer expenditure across any of the seven models tested. Instead, GDP per capita emerges as the dominant driver of household consumption with an elasticity of 0.854 and 0.870 that is significant at the one percent level across all specifications. These findings are verified by a cross-validated LASSO robustness check, which eliminated all FDI variables from the model while keeping GDP per capita and labor force size as the sole predictors of consumer expenditure. These results suggest that FDI impacts household welfare indirectly, through income and employment channels, rather than a direct impact on consumer spending.