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FDI in the CEEC's and the Theory of Real Options: An Empirical Assessment

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  • Carlo Altomonte

Abstract

Building on the empirical evidence resulting from a newly developed database of foreign direct investment (FDI) operations in the countries of Central and Eastern Europe (CEECs), panel data techniques are used to show that, at the sector level, a consistent modelling of FDI flows needs to take into account not only the determinants traditionally considered by the literature, including the recent developments on gravity models, but also variables linked to the institutional environment in which the FDI is undertaken. The inclusion of these variables, affecting the risk and the uncertainty of the FDI operation, is in line with the main findings of the real option theory of investments, whose implications are here empirically tested with success.

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Bibliographic Info

Paper provided by LICOS - Centre for Institutions and Economic Performance, KU Leuven in its series LICOS Discussion Papers with number 7698.

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Length: 34 pages
Date of creation: 01 Sep 1998
Date of revision:
Handle: RePEc:lic:licosd:7698

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Keywords: panel data; real option theory; gravity models; FDI; transition economies;

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  1. Vannini, Stefano, 1994. "Foreign Direct Investment in Central and Eastern European Countries : The Role of Institutional Reforms," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1995024, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 14 Jul 1995.
  2. Thomas, J. & Worrall, T., 1990. "Foreign Direct Investment And The Risk Of Expropriation," The Warwick Economics Research Paper Series (TWERPS) 342, University of Warwick, Department of Economics.
  3. Peter J Buckley & Mark C Casson, 1998. "Models of the Multinational Enterprise," Journal of International Business Studies, Palgrave Macmillan, vol. 29(1), pages 21-44, March.
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Cited by:
  1. Ziacik, Terri, 2000. "An assessment of the Estonian investment climate: Results of a survey of foreign investors and policy implications," BOFIT Discussion Papers 3/2000, Bank of Finland, Institute for Economies in Transition.

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