Demand for Capital in Transition Economies
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Demand for foreign investment can create a financial gap characterising a lack of home resources. Harrod-Domar model gives a benchmark but the gap can be smaller what can be tested under an assumption of non-zero elasticity of substitution of domestic for foreign capital. New capital is characterised by capital mobility. A more open capital account implies a higher productive performance but for strong economies only. An approach based on a Feldstein-Ha-rioka hypothesis is used to quantify a measure of capital mobility by econometric models. Technique of panel data regressions is briefly mentioned as a tool which helps to solve the problem of not sufficiently long individual time -series. Analysis of twelve European transition economies is performed.
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