Foreign Direct Investment in Southeast Europe
AbstractThis paper applies a gravity model to foreign direct investment (FDI) stocks in five countries of Southeast Europe from nine selected Western European source countries, using five countries of Central Europe as a control group. Basic elements of the economic theory on FDI are shortly reviewed, then the discussion shifts to recent empirical work and the various issues surrounding estimates using the gravity equation. FDI to Central Europe is mainly of the horizontal, market-seeking type. The evidence for Southeast Europe is less clear. Both types co-exist and, if we exclude Croatia, we are led to conclude that neither the vertical, efficiency-seeking type nor the horizontal type dominates. The countries of Southeast Europe overall are found, unsurprisingly, to have lower than normal stocks of FDI in relation to the countries of the control group, GDPs and geographical distances to investing countries accounted for. Through the estimation of a gravity equation for trade using the residuals of the FDI gravity equation, evidence is found in favour of complementarity, rather than substitutability, between trade and FDI for the control group. No conclusive evidence is found in favour of either for the countries of Southeast Europe.
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Bibliographic InfoPaper provided by The Vienna Institute for International Economic Studies, wiiw in its series wiiw Working Papers with number 24.
Date of creation: Mar 2003
Date of revision:
Publication status: Published as wiiw Working Paper
Find related papers by JEL classification:
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- P17 - Economic Systems - - Capitalist Systems - - - Performance and Prospects
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- Saul Estrin & Milica Uvalic, 2013. "Foreign direct investment into transition economies: Are the Balkans different?," Europe in Question Discussion Paper Series of the London School of Economics (LEQs) 4, London School of Economics / European Institute.
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