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Determinants of Foreign Direct Investment in Georgia

  • Jacek Cukrowski
  • George Kavelashiwli

Foreign direct investment (FDI) brings host countries capital, productive facilities, and technology transfers, as well as new jobs and management expertise. Thus it is important to understand why in many countries FDI inflow is lower than it would be expected. The goal of this study is to investigate factors determining flow of FDI in Georgia. The key point of the analysis is the impact of stability of economic and legal environment on the pattern of FDI. In particular, we show that (i) the variability of basic macroeconomic fundamentals decreases the flow of FDI, (ii) high volatility of fiscal, business regulations makes FDI smaller, (iii) unstable economic environment does not attract long term investors but mainly speculative capital. Based on theoretical findings we formulate clear message to policy makers stating that in order to expect significant flow of long term and non-speculative foreign capital, first of all, a stable economic and legal environment is needed.

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Paper provided by CASE-Center for Social and Economic Research in its series CASE-CEU Working Papers with number 0039.

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Length: 36 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:sec:ceuwps:0039
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