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

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  • Bruno Merlevede

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  • Koen Schoors

Abstract

We examine the determinants of FDI stocks of ???old??? EU-members in ten accession countries. Our partial adjustment framework results in a dynamic panel data analysis. In addition to the traditional variables, such as market potential and unit labour costs, we find institutional development to be a robust determinant of equilibrium FDI stocks. The adjustment towards equilibrium is rapid. The relationship between FDI and the privatization process is complex. Non-direct privatization schemes negatively affect the speed of adjustment, whereas direct privatization strategies positively affect the equilibrium itself. Privatization history increases equilibrium FDI stocks, independently of the method applied.

Suggested Citation

  • Bruno Merlevede & Koen Schoors, 2005. "How to Catch Foreign Fish? FDI and Privatization in EU Accession Countries," William Davidson Institute Working Papers Series wp785, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2005-785
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    Keywords

    foreign direct investment; privatisation; partial adjustment;

    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • 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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