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Foreign Direct Investment in Southeast Europe

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  • Edward Christie

Abstract

This paper applies a gravity model to foreign direct investment (FDI) stocks in five countries of Southeast Europe from nine selected Western European source countries, using five countries of Central Europe as a control group. Basic elements of the economic theory on FDI are shortly reviewed, then the discussion shifts to recent empirical work and the various issues surrounding estimates using the gravity equation. FDI to Central Europe is mainly of the horizontal, market-seeking type. The evidence for Southeast Europe is less clear. Both types co-exist and, if we exclude Croatia, we are led to conclude that neither the vertical, efficiency-seeking type nor the horizontal type dominates. The countries of Southeast Europe overall are found, unsurprisingly, to have lower than normal stocks of FDI in relation to the countries of the control group, GDPs and geographical distances to investing countries accounted for. Through the estimation of a gravity equation for trade using the residuals of the FDI gravity equation, evidence is found in favour of complementarity, rather than substitutability, between trade and FDI for the control group. No conclusive evidence is found in favour of either for the countries of Southeast Europe.

Suggested Citation

  • Edward Christie, 2003. "Foreign Direct Investment in Southeast Europe," wiiw Working Papers 24, The Vienna Institute for International Economic Studies, wiiw.
  • Handle: RePEc:wii:wpaper:24
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    File URL: https://wiiw.ac.at/foreign-direct-investment-in-southeast-europe-dlp-523.pdf
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    Citations

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    Cited by:

    1. Demekas, Dimitri G. & Horvath, Balazs & Ribakova, Elina & Wu, Yi, 2007. "Foreign direct investment in European transition economies--The role of policies," Journal of Comparative Economics, Elsevier, vol. 35(2), pages 369-386, June.
    2. Dinçer, Gönül, 2014. "Turkey’s Rising Imports from BRICS: A Gravity Model Approach," MPRA Paper 61979, University Library of Munich, Germany.
    3. Saul Estrin & Milica Uvalic, 2013. "Foreign direct investment into transition economies: Are the Balkans different?," Europe in Question Discussion Paper Series of the London School of Economics (LEQs) 4, London School of Economics / European Institute.
    4. Saul Estrin & Milica Uvalic, 2013. "Foreign direct investment into transition economies: Are the Balkans different?," LEQS – LSE 'Europe in Question' Discussion Paper Series 64, European Institute, LSE.
    5. Oana Cristina Popovici & Adrian Cantemir Călin, 2014. "FDI theories. A location-based approach," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 17(53), pages 3-24, September.
    6. Grupe, Claudia & Kušić, Siniša, 2005. "Intra-regional cooperation in the Western Balkans: under which conditions does it foster economic progress?," LSE Research Online Documents on Economics 23373, London School of Economics and Political Science, LSE Library.
    7. Popovici Oana Cristina, 2015. "Assessing Fdi Determinants In Cee Countries During And After Transition," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 113-122, July.
    8. Edward Christie, 2004. "Trade Flows in Southeast Europe," wiiw Balkan Observatory Working Papers 59, The Vienna Institute for International Economic Studies, wiiw.
    9. H. Richard Nakamura & Mikael Olsson & Mikael Lönnborg, 2012. "FDI in the post-EU accession Baltic Sea Region: A global or a regional concern?," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 12(2), pages 89-108, December.
    10. Estrin, Saul & Uvalic, Milica, 2013. "Foreign direct investment into transition economies: are the Balkans different?," LSE Research Online Documents on Economics 53180, London School of Economics and Political Science, LSE Library.
    11. Flaviu Mihaescu & Liviu Voinea, 2006. "The Determinants of Foreign Banking Activity in South East Europe: Do FDI, Bilateral Trade and EU Policies Matter?," wiiw Balkan Observatory Working Papers 67, The Vienna Institute for International Economic Studies, wiiw.
    12. 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.
    13. Sklias, Pantelis & Tsampra, Maria, 2011. "Assessing regional integration and business potential in the Western Balkans," MPRA Paper 36341, University Library of Munich, Germany.

    More about this item

    Keywords

    foreign direct investment; gravity model; Southeast Europe; proximity-concentration trade-off; economic geography;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • P17 - Economic Systems - - Capitalist Systems - - - Performance and Prospects

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