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How to Catch Foreign Fish? FDI and Privatisation in EU Accession Countries





In a partial adjustment framework the observed FDI stock is the result of two driving forces. First, the stock converges towards its equilibrium level, even without policy changes. Second, the equilibrium level itself is driven by changes in its determinants. By means of a dynamic panel data analysis we examine the determinants of investment by ‘old’ EU-members in ten countries of Central and Eastern Europe. We find a rapid adjustment towards equilibrium. Traditional variables, such as market potential, trade integration, and relative unit labour costs, are fairly stable as determinants of equilibrium FDI stocks in transition economies. Institutional development in all its forms is a robust determinant of the optimal level of FDI. The relationship between FDI and the privatization process is complex. Non-direct privatization schemes negatively affect the speed of adjustment towards the equilibrium, whereas current direct privatization strategies positively affect the equilibrium level of FDI. Privatization history increases equilibrium FDI, independently of the method applied.

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Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 05/309.

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Length: 37 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:rug:rugwps:05/309
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  1. Nada Mora & Ratna Sahay & Jeromin Zettelmeyer & Pietro Garibaldi, 2002. "What Moves Capital to Transition Economies?," IMF Working Papers 02/64, International Monetary Fund.
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  8. Laura Resmini, 2000. "The Determinants of Foreign Direct Investment in the CEECs: New evidence from sectoral patterns," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(3), pages 665-689, November.
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  10. Philip Stevens, 2002. "The Role of Efficiency as an Explanation of International Income Differences," NIESR Discussion Papers 205, National Institute of Economic and Social Research.
  11. Bevan, Alan & Estrin, Saul & Meyer, Klaus, 2004. "Foreign investment location and institutional development in transition economies," International Business Review, Elsevier, vol. 13(1), pages 43-64, February.
  12. Carstensen, Kai & Toubal, Farid, 2004. "Foreign direct investment in Central and Eastern European countries: a dynamic panel analysis," Journal of Comparative Economics, Elsevier, vol. 32(1), pages 3-22, March.
  13. Campos, Nauro F & Kinoshita, Yuko, 2003. "Why Does FDI Go Where it Goes? New Evidence from the Transitional Economies," CEPR Discussion Papers 3984, C.E.P.R. Discussion Papers.
  14. Alan A. Bevan & Saul Estrin, 2000. "The Determinants of Foreign Direct Investment in Transition Economies," William Davidson Institute Working Papers Series 342, William Davidson Institute at the University of Michigan.
  15. Sophie Claeys, & Gleb Lanine & Koen Schoors, 2005. "Bank Supervision Russian style: Rules versus Enforcement and Tacit Objectives," William Davidson Institute Working Papers Series wp778, William Davidson Institute at the University of Michigan.
  16. Frank Windmeijer, 2000. "A finite sample correction for the variance of linear two-step GMM estimators," IFS Working Papers W00/19, Institute for Fiscal Studies.
  17. repec:tpr:qjecon:v:114:y:1999:i:4:p:1153-1191 is not listed on IDEAS
  18. P. Everaert & G. Sarens, 2005. "Outsourcing bij Vlaamse Ondernemingen: een Exploratief Onderzoek," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/306, Ghent University, Faculty of Economics and Business Administration.
  19. Bevan, Alan & Estrin, Saul, 2000. "The Determinants of Foreign Direct Investment in Transition Economies," CEPR Discussion Papers 2638, C.E.P.R. Discussion Papers.
  20. Cheng, Leonard K. & Kwan, Yum K., 2000. "What are the determinants of the location of foreign direct investment? The Chinese experience," Journal of International Economics, Elsevier, vol. 51(2), pages 379-400, August.
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  23. repec:bla:restud:v:58:y:1991:i:2:p:277-97 is not listed on IDEAS
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