On the Determinants of Foreign Direct Investment in Transition Economies

TitleOn the Determinants of Foreign Direct Investment in Transition Economies
Publication TypeJournal Article
AuthorsBaniak, A., J. Cukrowski, and J. Herczyński
Journal titleProblems of Economic Transition
Pages6 - 28

Foreign direct investment (FDI) brings host countries capital, productive facilities, and technology transfer as well as new jobs and management expertise. Thus, it is important to understand why in many transition countries FDI inflow is lower than expected. The goal of this study is to explore some important factors determining flow of FDI into transition countries. In particular, we analyze the legal environment for FDI in some transition economies. Then we model the impact of stability of the economic and legal environment on the pattern of FDI. Our analysis shows that (1) higher variability of basic macroeconomic fundamentals reduces the flow of FDI, (2) high volatility of fiscal and business regulations makes the inflow of FDI smaller, and (3) macroeconomic and legal instability leads to adverse selection of the investors. Based on theoretical findings we formulate a clear message to policy makers stating that in order to attract significant inflows of long-term and nonspeculative foreign capital, first of all, a stable economic and institutional environment is needed. ABSTRACT FROM AUTHORCopyright of Problems of Economic Transition is the property of M.E. Sharpe Inc. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)


On the Determinants of Foreign Direct Investment in Transition Economies; Baniak, Andrzej 1,2; Cukrowski, Jacek 3; Herczyński, Jan 4; Affiliations: 1: Department of Economics, Central European University, Budapest, Hungary.; 2: Wroclaw University of Economics, Wroclaw, Poland.; 3: United Nations Development Programme's Regional Center, Bratislava, Slovakia.; 4: Interdisciplinary Centre for Mathematical and Computational Modeling, Warsaw University, Warsaw, Poland.; Issue Info: Jun2005, Vol. 48 Issue 2, p6; Thesaurus Term: INVESTMENTS, Foreign; Thesaurus Term: TRANSITION economies; Thesaurus Term: INTERNATIONAL economic relations; Thesaurus Term: CAPITAL movements; Thesaurus Term: INDUSTRIALIZATION; Thesaurus Term: TECHNOLOGICAL innovations; NAICS/Industry Codes: 926110 Administration of General Economic Programs; NAICS/Industry Codes: 522293 International Trade Financing; Number of Pages: 23p; Document Type: Article

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