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FDI performance: a stochastic frontier analysis of location and variance determinants

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  • Marie M. Stack
  • Geetha Ravishankar
  • Eric J. Pentecost

Abstract

The opening up process of the eastern European countries was marked by greater integration of FDI with their western neighbouring countries. Using the single-step ML approach to stochastic frontier analysis, the location and variance determinants of FDI are estimated using the knowledge capital (KK) model framework. The findings, based on a panel of bilateral FDI stocks from 10 western to 10 eastern European countries over the 1996-2007 period, suggest FDI is determined by both horizontal and vertical motives while the process of liberalization and infrastructural developments significantly reduces the variance of FDI. In using a stochastic frontier specification of the KK model, the efficiency of FDI performance is identified relative to maximum levels. The bilateral efficiency scores suggest a mixed performance, indicating scope to improve the efficiency of FDI.

Suggested Citation

  • Marie M. Stack & Geetha Ravishankar & Eric J. Pentecost, 2015. "FDI performance: a stochastic frontier analysis of location and variance determinants," Applied Economics, Taylor & Francis Journals, vol. 47(30), pages 3229-3242, June.
    • Handle: RePEc:taf:applec:v:47:y:2015:i:30:p:3229-3242
    DOI: 10.1080/00036846.2015.1013612
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    Cited by:

    1. Le Chang & Jing Li & Kee-Cheok Cheong & Lim-Thye Goh, 2021. "Can Existing Theories Explain China’s Outward Foreign Direct Investment in Belt and Road Countries," Sustainability, MDPI, vol. 13(3), pages 1-17, January.
    2. Nguyen, Anh T.N. & Haug, Alfred A. & Owen, P. Dorian & Genç, Murat, 2020. "What drives bilateral foreign direct investment among Asian economies?," Economic Modelling, Elsevier, vol. 93(C), pages 125-141.
    3. Tatsiana Dziavochka & Elyas Abdulahi Mohamued, 2020. "The Nexus of Chinese OFDI Innovation and Entrepreneurship in Europe: A True Fixed Effect Stochastic Analysis," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(4), pages 399-414, April.

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