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Explaining Foreign Direct Investment in Central and Eastern Europe: an Extended Gravitiy Approach

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Author Info
Bos,J.W.B.
Laar,M.,van de (METEOR)

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Abstract

In this paper, we question whether there is a catch-up effect or announcement effectin Foreign Direct Investment (FDI) from the European Union (EU) to the ten EU accession countries. We study FDI outflows from the Netherlands, a small open economy with few historical ties to Eastern Europe, and compare FDI in the transition countries in Central and Eastern Europe to FDI in other regions - most notably to transition countries in Central Asia. In our analysis we try to impose as little structure as possible on the data and allow for heterogeneity within the different regions. In an effort to improve on past studies in the same area, we use a very broad sample of countries, we present country-specific results and test how robust regional dummies are, we check for omitted variable bias and we try to correct for possible non-linearity in the gravity relationships. We find that many of the differences in results of previous studies can be attributed to these specification problems. There is no evidence that an overall catch-up effect or announcement effect exists. Rather,economic fundamentals explain differences in inward investment in the region. FDI and trade are mostly complementary and there is no evidence that there is crowding out between regions.

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Paper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 041.

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Date of creation: 2004
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Handle: RePEc:dgr:umamet:2004041

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Keywords: macroeconomics ;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  11. Laura Resmini, 1999. "The Determinants of Foreign Direct Investment into the CEECs: New Evidence from Sectoral Patterns," LICOS Discussion Papers 8399, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
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  12. Koivu, Tuuli, 2002. "Do efficient banking sectors accelerate economic growth in transition countries," BOFIT Discussion Papers 14/2002, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  13. Bevan, Alan & Estrin, Saul, 2000. "The Determinants of Foreign Direct Investment in Transition Economies," CEPR Discussion Papers 2638, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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    • Robert J. Barro & Paul M. Romer, 1991. "Economic Growth," NBER Books, National Bureau of Economic Research, Inc, number barr91-1, June.
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  18. Carlo Altomonte, 1998. "FDI in the CEEC’s and the Theory of Real Options: An Empirical Assessment," LICOS Discussion Papers 7698, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
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  21. Dawn Holland & Nigel Pain, 1998. "The Diffusion of Innovations in Central and Eastern Europe: A Study of the Determinants and Impact of Foreign Direct Investment," NIESR Discussion Papers 137, National Institute of Economic and Social Research. [Downloadable!]
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  23. Paul Brenton & Francesca Di Mauro & Matthias Lücke, 1999. "Economic Integration and FDI: An Empirical Analysis of Foreign Investment in the EU and in Central and Eastern Europe," Empirica, Springer, vol. 26(2), pages 95-121, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Elvira Sapienza, 2009. "The interaction between Export and FDI: Central-Eastern Europe and EU15," Quaderni DSEMS 13-2009, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia. [Downloadable!]
  2. Sova, Robert & Albu, Lucian Liviu & Stanciu, Ion & Sova, Anamaria, 2009. "Patterns of Foreign Direct Investment in the New EU Countries," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 6(2), pages 42-51, June. [Downloadable!]
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