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The Location of Foreign Direct Investment in the Central and Eastern European Countries: A Mixed Logit and Multilevel Data Approach

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  • Simona Rasciute

    ()
    (Dept of Economics, Loughborough University)

  • Eric J. Pentecost

    ()
    (Dept of Economics, Loughborough University)

Abstract

This paper uses the Mixed logit (ML) model and a novel three-level dataset to examine the factors explaining 1,108 foreign direct investment (FDI) location decisions into 13 Central and Eastern European countries (CEECs) over an eleven-year period between 1997 and 2007. The ML model approach is superior to other discrete choice methods in that it allows for random taste variation, unrestricted substitution patterns and correlation in unobserved factors over time. The highly significant empirical results, based on a general underlying economic model of imperfect competition, show that the responsiveness of the probabilities of choices to invest in a particular country in CEE to country-level variables differs both across sectors and across firms of different sizes and profitability. The results generalise previous studies that used only country-level data or only industry- and firm-level data to give a more accurate explanation of the firm-specific investment location decisions.

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Bibliographic Info

Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2008_04.

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Date of creation: Jul 2008
Date of revision: Jul 2008
Handle: RePEc:lbo:lbowps:2008_04

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Keywords: Mixed logit model; random parameters; foreign direct investment; multi-level data; Halton draws;

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  12. Richard Baldwin, 2005. "Heterogeneous Firms and Trade: Testable and Untestable Properties of the Melitz Model," NBER Working Papers 11471, National Bureau of Economic Research, Inc.
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