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The Location of Foreign Direct Investment in the Central and Eastern European Countries: A Mixed Logit and Multilevel Data Approach

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Listed:
  • Simona Rasciute

    () (Dept of Economics, Loughborough University)

  • Eric J. Pentecost

    () (Dept of Economics, Loughborough University)

Abstract

This paper uses the Mixed logit (ML) model and a novel three-level dataset to examine the factors explaining 1,108 foreign direct investment (FDI) location decisions into 13 Central and Eastern European countries (CEECs) over an eleven-year period between 1997 and 2007. The ML model approach is superior to other discrete choice methods in that it allows for random taste variation, unrestricted substitution patterns and correlation in unobserved factors over time. The highly significant empirical results, based on a general underlying economic model of imperfect competition, show that the responsiveness of the probabilities of choices to invest in a particular country in CEE to country-level variables differs both across sectors and across firms of different sizes and profitability. The results generalise previous studies that used only country-level data or only industry- and firm-level data to give a more accurate explanation of the firm-specific investment location decisions.

Suggested Citation

  • Simona Rasciute & Eric J. Pentecost, 2008. "The Location of Foreign Direct Investment in the Central and Eastern European Countries: A Mixed Logit and Multilevel Data Approach," Discussion Paper Series 2008_04, Department of Economics, Loughborough University, revised Jul 2008.
  • Handle: RePEc:lbo:lbowps:2008_04
    as

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    File URL: http://www.lboro.ac.uk/departments/ec/RePEc/lbo/lbowps/Rasciute_Pentecost.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Mixed logit model; random parameters; foreign direct investment; multi-level data; Halton draws;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • P33 - Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

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