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Contrasting the dynamic patterns of manufacturing and service FDI: Evidence from transition economies

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  • Aleksandra Riedl

    ()
    (Department of Economics, Vienna University of Economics & B.A.)

Abstract

We contribute to the foreign direct investment (FDI) literature by providing first empirical evidence on the relative importance of location factors for service and manufacturing FDI. This is of particular interest as the global stock of inward FDI in the service sector has become predominant in the last ten years. Based on a sectoral panel of eight new European member states in the period of 1998 to 2004 we perform a dynamic panel analysis allowing for individual adjustment periods across sectors. Results support our assumption that investment into the service sector, which is characterized by low installation costs, adjusts much faster to its desired level than manufacturing FDI. Furthermore, since services are mostly non-tradable, FDI into this sector is largely based on market-seeking motives while manufacturing FDI is also driven by international price competitiveness measured via real unit labor costs.

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Paper provided by Vienna University of Economics, Department of Economics in its series Department of Economics Working Papers with number wuwp117.

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Date of creation: Jan 2008
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Handle: RePEc:wiw:wiwwuw:wuwp117

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  1. Smarzynska Javorcik, Beata, 2004. "The composition of foreign direct investment and protection of intellectual property rights: Evidence from transition economies," European Economic Review, Elsevier, Elsevier, vol. 48(1), pages 39-62, February.
  2. Kolstad, Ivar & Villanger, Espen, 2008. "Determinants of foreign direct investment in services," European Journal of Political Economy, Elsevier, vol. 24(2), pages 518-533, June.
  3. Laura Resmini, 1999. "The Determinants of Foreign Direct Investment into the CEECs: New Evidence from Sectoral Patterns," LICOS Discussion Papers, LICOS - Centre for Institutions and Economic Performance, KU Leuven 8399, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  4. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, Elsevier, vol. 108(1), pages 1-24, May.
  5. Peter Walkenhorst, 2004. "Economic Transition and the Sectoral Patterns of Foreign Direct Investment," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 40(2), pages 5-26, March.
  6. Hubert Janicki & Phanindra Wunnava, 2004. "Determinants of foreign direct investment: empirical evidence from EU accession candidates," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 36(5), pages 505-509.
  7. Frank Windmeijer, 2000. "A finite sample correction for the variance of linear two-step GMM estimators," IFS Working Papers, Institute for Fiscal Studies W00/19, Institute for Fiscal Studies.
  8. Fazia Pusterla & Laura Resmini, 2005. "Where do foreign firms locate in transition Countries? An empirical investigation," ISLA Working Papers, ISLA, Centre for research on Latin American Studies and Transition Economies, Universita' Bocconi, Milano, Italy 20, ISLA, Centre for research on Latin American Studies and Transition Economies, Universita' Bocconi, Milano, Italy, revised Sep 2005.
  9. n/a, 2002. "The Role of Efficiency as an Explanation of International Income Differences," NIESR Discussion Papers, National Institute of Economic and Social Research 137, National Institute of Economic and Social Research.
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Cited by:
  1. Christen, Elisabeth & Francois, Joseph, 2010. "Modes of Delivery in Services," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7912, C.E.P.R. Discussion Papers.
  2. Reuter, Ute & Burr, Wolfgang, 2011. "International market assessment: Site selection in service firms," Research Papers on Innovation, Services and Technology 2/2011, University of Stuttgart, Institute of Business Administration, Department I - Institute of Research & Development and Innovation Management.

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