Ново изследване на проф. Мирослав Матеев


Do Central and Eastern European Countries Posses FDI Advantages to More Developed Western Countries?*

Miroslav Mateev

Iliya Tsekov


American University in Bulgaria, 1 G. Izmirliev square, 2700, Blagoevgrad, Bulgaria


August 30, 2012

This paper examines the main determinants of Foreign Direct Investment (FDI) in 26 European countries over the period 1996 -2010. The previous research reports two groups of explanatory factors: gravity factors (proximity, market size) and factor endowments (infrastructure, human capital). Other factors that are found to have significant effect are trade openness, tax policy and tax incentives, labor costs and regional integration. Using regression analysis on a data panel consisting of nearly 390 observations from a total of 26 European countries, the study shows significant relationships between FDI and various proxies for different location, institutional and policy factors. By distinguishing between Eastern and Western European countries, this study provides further evidence that the importance of different location factors is not significantly different across the two groups of countries, whilst there is a set of institutional quality effects that are stronger in the group of more developed Western economies. At the same time cost-related factors such as corporate tax rate and unit labor costs appear to be of high significance only for the group of CEE countries. Thus, we may conclude that Central and Eastern European countries do posses some comparative advantages to more developed Western countries as attractive destination to foreign investors.

Keywords: transition economy, foreign direct investment, multinational enterprise, gravity model

JEL classification: C 31, C33, F21, F23


The full paper is available here (Pdf)