THE INFLUENCE OF FOREIGN DIRECT INVESTMENT AND PUBLIC INCENTIVES ON THE SOCIO-ECONOMIC DEVELOPMENT OF REGIONS: AN EMPIRICAL STUDY FROM THE CZECH REPUBLIC

This article investigates the impact of foreign direct investment, government financial incentives as well as science and research expenditures on different socio-economic development processes in the Czech Republic. These financial flows are important for economic growth of regions and constitute a substantial part of financial flows within national economies. We focus on the effect of these aspects on various indicators concerning the business environment, labor market, population growth and construction activity. The analysis is conducted using OLS regression models. Results indicate that it takes about two years for foreign direct investment to take effect and its influence is relevant for approximately 13 years. We found that foreign direct investment has a considerable influence on the number of small firms in the region, on the number of buildings permits in the region and on the value of residential estates. Our analysis further shows that government investment incentives have an impact on similar areas as foreign direct investment, which is in accordance with the general theory of the functioning of the economy. Science and research expenditures, on the other hand, seem not to have any effect in the first seven years after the expense has been realized. In this case, science and research expenditures show a longer time to respond as far as the studied indicators are concerned. The concrete effects of foreign direct investment and government financial incentives in terms of numerical values have been calculated using the structure of our models. The magnitude and reasons for these effects are discussed. The results of these calculations indicate that foreign direct investment and government investment incentives have significant positive effect on the development processes of regions but in specific areas only.