Foreign direct investment earnings and their division in the Czech Republic

The Czech economy has been characterized by a rapidly increasing external income balance deficit since 1998, which was caused by an increasing outflow of FDI earnings. The paper analyses factors, which determine the total amount of FDI earnings in a host economy and their subsequent division into reinvested earnings and repatriated profits. Three main factors are examined: total FDI stock in the economy and its structure, the FDI rate of return and the FDI financial life cycle. Growing total FDI stock, which reaches 51 % of Czech GDP, is the most influential factor because the FDI rate of return has been approximately stable exceeding 10 %. An outstanding amount of reinvested earnings in the Czech economy negatively influences the current account deficit, which exceeds the GDP 5 % benchmark rate, although reinvested earnings do not represent actual financial outflows.

Keywords: foreign direct investment, FDI financial life cycle, earnings outflow, reinvested earnings, repatriated profits, income balance