The Impact of Country Risk Ratings and of the Status of EU Integration on FDI Inflows in CESEE Countries
AbstractWe analyze the determinants of foreign direct investment (FDI) inflows in the ten EU Member States, plus Croatia, in Central, Eastern and Southeastern Europe (CESEE) over the period from 1995 to 2011, with a particular focus on the effects of country risk ratings and the EU integration status on a country’s attractiveness for FDI. We distinguish between twelve different risk ratings and seven stages of integration (non-EU country, potential candidate country, candidate country, negotiating country, EU Member State, ERM II member country and euro area country). Using quarterly data, we identify the market size and cost factors as the most important determinants, suggesting that market- and efficiency-seeking FDI were the most prevalent forms of FDI in the region. The host country’s infrastructural environment also has the expected positive effect on FDI inflows. The effects of risk ratings turn out to be nonlinear in the sense that improvements in intermediate risk levels have the largest positive effect on FDI, while this effect diminishes in the case of upgrades at the highest levels. Turning to the status of EU integration, a more advanced stage represents an additional bonus over pure cost- and market-related factors, but only up to the onset of the global financial and economic crisis.
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Bibliographic InfoArticle provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Focus on European Economic Integration.
Volume (Year): (2012)
Issue (Month): 3 ()
Postal: Oesterreichische Nationalbank, Documentation Management and Communications Services, Otto-Wagner Platz 3, A-1090 Vienna, Austria
Find related papers by JEL classification:
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- F15 - International Economics - - Trade - - - Economic Integration
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
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