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Economic integration and FDI: an empirical analysis of foreign investment in the EU and in Central and Eastern Europe

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  • Brenton, Paul
  • DiMauro, Francesca
  • Lücke, Matthias

Abstract

Recent evidence suggests that regional economic integration provides an important stimulus not only to trade, but also to FDI. In contrast, the available theory on FDI does not yet provide empirically testable propositions on the effects of concurrent trade and investment liberalisation. Moreover, given the limits of simulation models, which rely heavily upon parameter choice, in assessing the impact of such liberalisation, there is a need for empirical analysis to identify the principal features of FDI. This paper uses a 'gravity model' approach to assess the impact of the deepening integration between the EU and the CEECs on FDI flows in terms of three key issues. First, we provide systematic estimates of the expected long-term level of FDI in the CEECs. Second, we investigate whether FDI in the CEECs, on the one hand, and source country exports and imports, on the other hand, are complements or substitutes. Finally, we enquire whether an increase in the attractiveness of the CEECs to foreign investors has affected the magnitude of FDI going to other European countries.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 890.

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Date of creation: 1998
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Handle: RePEc:kie:kieliw:890

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Keywords: foreign direct investment; transition economies; gravity model;

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References

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  1. André Sapir, 2001. "Domino effects in Western European trade, 1960-92," ULB Institutional Repository 2013/8138, ULB -- Universite Libre de Bruxelles.
  2. Sinn, Hans-Werner & Weichenrieder, Alfons J., 1997. "Foreign direct investment, political resentment and the privatization process in eastern Europe," Munich Reprints in Economics 19562, University of Munich, Department of Economics.
  3. James R. Markusen, 1997. "Trade versus Investment Liberalization," NBER Working Papers 6231, National Bureau of Economic Research, Inc.
  4. Markusen, James R. & Venables, Anthony J., 1996. "The Theory of Endowment, Intra-Industry and Multinational Trade," CEPR Discussion Papers 1341, C.E.P.R. Discussion Papers.
  5. Szalavetz, Andrea & Lücke, Matthias, 1997. "Export reorientation and transfer of know-how and technology: the case of Hungarian manufactured exports," Kiel Working Papers 801, Kiel Institute for the World Economy.
  6. Markusen, James R. & Venables, Anthony J., 1998. "Multinational firms and the new trade theory," Journal of International Economics, Elsevier, vol. 46(2), pages 183-203, December.
  7. Hans-Peter Lankes & A. J. Venables, 1996. "Foreign direct investment in economic transition: the changing pattern of investments," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 4(2), pages 331-347, October.
  8. Markusen, James R. & Venables, Anthony J. & Eby Konan, Denise & Zhang, Kevin H., 1996. "A Unified Treatment of Horizontal Direct Investment, Vertical Direct Investment, and the Pattern of Trade in Goods and Services," Working Paper Series 465, Research Institute of Industrial Economics.
  9. Nunnenkamp, Peter & Gundlach, Erich & Agarwal, Jamuna Prasad, 1994. "Globalisation of production and markets," Open Access Publications from Kiel Institute for the World Economy 807, Kiel Institute for the World Economy (IfW).
  10. Brenton, Paul & Gros, Daniel, 1997. "Trade Reorientation and Recovery in Transition Economies," Oxford Review of Economic Policy, Oxford University Press, vol. 13(2), pages 65-76, Summer.
  11. Wolfgang HÄRDLE & J. MARRON & L. YANG, 1996. "Discussion," SFB 373 Discussion Papers 1996,65, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  12. Baldwin, R.E. & Forslid, R. & Haaland, J.I., 1995. "Investment Creation and Investment Diversion: Simulation Analysis of the Single Market Programme," Papers 23/95, Norwegian School of Economics and Business Administration-.
  13. Jonathan Eaton & Akiko Tamura, 1996. "Japanese and U.S. Exports and Investment as Conduits of Growth," NBER Chapters, in: Financial Deregulation and Integration in East Asia, NBER-EASE Volume 5, pages 51-75 National Bureau of Economic Research, Inc.
  14. Piazolo, Daniel, 1997. "Trade Integration between Eastern and Western Europe: Policies Follow the Market," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 12, pages 259-297.
  15. Brenton, Paul & Di Mauro, Francesca, 1999. "The Potential Magnitude and Impact of FDI flows to CEECs," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 14, pages 59-74.
  16. repec:wop:humbsf:1996-65 is not listed on IDEAS
  17. Laszlo Matyas, 1997. "Proper Econometric Specification of the Gravity Model," The World Economy, Wiley Blackwell, vol. 20(3), pages 363-368, 05.
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