engleski

Country-specific characteristics as determinants of FDI-flows to transition economies

The main advantages of FDI, as a non-debt creating source of financing, are access to new knowledge, positive spill-over effects to local economy and less volatility, compared to financial investment. With reference to the SEEC non-membership in the EU and emergence of the new EU-member countries as desirable FDI-locations, together with steadily growing cross-border activities of many MNE and an increasing competition in attracting FDI worldwide, the aim of the paper is to find out determinants of FDI-flows to transition countries. The purpose is to give economic policy recommendations in order to increase inflows of foreign investment in times of slow economic recovery following the financial market crisis of 2007-2008. Regression analysis has revealed some characteristic of a ‘gravity type model’ in which the realized level of economic development and geographical distance play a significant role in explaining driving forces behind FDI. Trade openness proved to have strong positive impact, while at the same time, institutional factors and cost advantage realized weak influence on FDI to transition countries.

FDI; gravity equation; institutional factors; EU; transition economies

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