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The Determinants of Foreign Direct Investment into the CEECs: New Evidence from Sectoral Patterns

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Author Info
Laura Resmini

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Abstract

This paper analyses European Union FDI flows into the CEECs at a sector level, which is currently the less studied aspect of this issue. The aim is to understand whether and to what extent FDI in different sectors reacts to the same characteristics of the host countries. The paper first presents data that summarise the trend of FDI in the CEECs and, then, regression evidence that seeks to account for differences among sectors. A statistically significant positive association has been found between FDI and market size, wage differential, the stage of the transition process and the degree of openness of the economy as well. However, a statistically significant negative relation has been found for proximity to Europe and the degree of industrial concentration. This last effect suggests that strategic motivations completely offset the benefits generated by agglomeration economies. Controlling for sector specific effects, some differences emerge. Progress towards a market economy is relevant only in scale intensive and science based sectors, while labour cost is a potential attractiveness for foreign investors in traditional labour intensive sector and in science based ones. Also market considerations, proxied by the traditional gravity approach variables, affect FDI differently, depending on the industrial sector.

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Paper provided by LICOS - Centre for Institutions and Economic Performance, K.U.Leuven in its series LICOS Discussion Papers with number 8399.

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Length: 28 pages
Date of creation: 1999
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Handle: RePEc:lic:licosd:8399

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Keywords: Foreign direct investment; Transition; Central and Eastern Europe; panel data;

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Find related papers by JEL classification:
F15 - International Economics - - Trade - - - Economic Integration
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data

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