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FDI in the CEEC's and the Theory of Real Options: An Empirical Assessment

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  • Carlo Altomonte

Abstract

Building on the empirical evidence resulting from a newly developed database of foreign direct investment (FDI) operations in the countries of Central and Eastern Europe (CEECs), panel data techniques are used to show that, at the sector level, a consistent modelling of FDI flows needs to take into account not only the determinants traditionally considered by the literature, including the recent developments on gravity models, but also variables linked to the institutional environment in which the FDI is undertaken. The inclusion of these variables, affecting the risk and the uncertainty of the FDI operation, is in line with the main findings of the real option theory of investments, whose implications are here empirically tested with success.

Suggested Citation

  • Carlo Altomonte, 1998. "FDI in the CEEC's and the Theory of Real Options: An Empirical Assessment," LICOS Discussion Papers 7698, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    • Handle: RePEc:lic:licosd:7698
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    File URL: http://www.econ.kuleuven.be/licos/publications/dp/dp76.pdf
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    References listed on IDEAS

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    Cited by:

    1. Kimberly A. Clausing & Cosmina L. Dorobantu, 2005. "Re‐entering Europe: Does European Union candidacy boost foreign direct investment?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(1), pages 77-103, January.
    2. Hockmann, H., 2003. "Ausländische Direktinvestitionen in den mittel- und osteuropäischen Ländern: Abwägung zwischen Marktpotenzialen und Politikrisiko," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 38.
    3. Arratibel, Olga & Furceri, Davide & Martin, Reiner & Zdzienicka, Aleksandra, 2011. "The effect of nominal exchange rate volatility on real macroeconomic performance in the CEE countries," Economic Systems, Elsevier, vol. 35(2), pages 261-277, June.
    4. Arratibel, Olga & Martin, Reiner & Furceri, Davide, 2008. "Real convergence in Central and Eastern European EU Member States: which role for exchange rate volatility?," Working Paper Series 929, European Central Bank.
    5. Bellak, Christian & Leibrecht, Markus & Riedl, Aleksandra, 2008. "Labour costs and FDI flows into Central and Eastern European Countries: A survey of the literature and empirical evidence," Structural Change and Economic Dynamics, Elsevier, vol. 19(1), pages 17-37, March.
    6. Jaap Bos & Mindel van de Laar, 2004. "Explaining Foreign Direct Investment in Central and Eastern Europe: an Extended Gravity Approach," DNB Working Papers 008, Netherlands Central Bank, Research Department.
    7. Lo, Fang-Yi & Bui, Quang-Tuan & Huarng, Kun-Huang, 2023. "The pace of international expansion for digital multinational enterprises," Technological Forecasting and Social Change, Elsevier, vol. 193(C).
    8. Sobir Shukurov & Mansoor Maitah & Luboš Smutka, 2016. "Determinants of Foreign Direct Investments in Transition Economies: Case of Commonwealth of Independent Countries," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 64(5), pages 1749-1761.
    9. Sels, A.T.H., 2006. "Foreign direct investment as an entry mode. An application in emerging economies," Other publications TiSEM 583ca9b5-1691-425d-8f77-0, Tilburg University, School of Economics and Management.

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    More about this item

    Keywords

    panel data; real option theory; gravity models; FDI; transition economies;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • P20 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - General

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