KTH/CESIS Working Paper Series in Economics and Institutions of Innovation
FDI inflows to the Transition Economies in Eastern Europe: Magnitude and Determinants
Abstract: This paper shows that there are large differences in the
volume of FDI that individual European transition economies have attracted
and tries to find determinants that can explain this distribution of FDI,
using panel data. This paper makes a distinction between ‘traditional’
determinants based on the motive for FDI and ‘transition-specific’
determinants. The empirical analysis contributes to earlier research by
separating the transition economies into two groups, CEE and CIS countries.
The CEE group consists of countries with a much higher GDP per capita than
the CIS group, and this is reflected in the observation that the FDI flows
to the CEE are primarily driven by a market-seeking motive while
resource-seeking investment can explain the distribution of FDI among the
CIS economies. This paper also concludes that transition performance and
the choice of primary privatisation method are important in explaining FDI
inflows to the transition economies. The analysis only finds weak evidence
for efficiency-seeking FDI into the region.
Keywords: foreign direct investment; Eastern Europe; transition; privatisation; (follow links to similar papers)
JEL-Codes: F21; F23; P21; (follow links to similar papers)
65 pages, March 29, 2006
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