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Institute of Public Finance

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Are there any top FDI performers among EU-15 and CEE countries? A comparative panel data analysis

Miroslav Mateev, University of Maine Business School, Corbett Hall, Orono, ME, USA
Iliya Tsekov, American University in Bulgaria, Blagoevgrad, Bulgaria

This paper examines the major determinants of foreign direct investment (FDI) inflows in 26 European Union (EU) countries using panel data. Our empirical study takes a different approach by separating European countries into two groups: Western (EU-15) countries and Central and Eastern European (CEE) countries. The results from the panel data analysis of FDI inflows to 26 EU countries for the period 1994-2012 show that: (1) traditional location variables such as market size, trade openness, unemployment, infrastructure, tax rate and unit labour costs are able, to a large extent, to explain FDI flows to both groups of countries; (2) there are country-specific factors such as economic growth, unit labour costs and credit risk that contribute to the differences in FDI patterns across EU-15 and CEECs; and (3) policy and institutional quality factors are found to play an important role for both groups of countries. When analyzing host countries based on their relative level of performance, we find that the top ten FDI performers are able to attract a significant amount of FDI because of their macroeconomic stability and high level of institutional development, while for EU countries with low FDI dominance, policy and institutional risk factors play a more important role.

Keywords:  foreign direct investment; transition economy; gravity model; institutional quality

Year:  2014   |   Volume:  38   |   Issue:  3   |   Pages:  337 - 374   

Full text (PDF)   |   DOI: 10.3326/fintp.38.3.4   |   E-mail this article   |   Download to citation manager
 September, 2014
III / 2014
EBSCO Publishing
ISSN 1846-887X
e-ISSN 1845-9757
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