Annals of the University of Oradea: Economic Science (Jul 2015)
ASSESSING FDI DETERMINANTS IN CEE COUNTRIES DURING AND AFTER TRANSITION
Abstract
The aim of this paper is to identify if the drivers of inward foreign direct investments’ stocks in Central and Eastern European countries changed in the last 20 years, given two substantial economic evolutions encountered in this period: the transition process and the adhesion at the European Union. We are interested if foreign investors are attracted by the quality of institutions, the labour market or by the telecommunications infrastructure, expressed by 10 variables, in the 11 newest EU member states. Therefore, we use a fixed effects panel data approach during 1994-2013 which we apply in two stages. In the first stage, we find the variables that strongly influence FDI in each of the three groups of determinants. In the second stage, the panel data analysis is applied only for the variables previously find as significant for FDI, to which we add traditional FDI determinants, such as trade openness and GDP per capita. Also, the mentioned years are divided into two sub periods, the first representing the transition period (from 1994 until 2003) and the second one the years comprising the EU adhesion process (from 2004 until 2013). The results confirm that there are changes in FDI determinants in these countries. During 1994 to 2003, investors were mostly interested in the quality of institutions, the openness of the economies and the environments capable of growth, where the products can be sold. For the period starting with 2004, the analyzed countries are attractive mainly through their capacity of providing labour force with low costs and created resources, such as the development of the mobile networks. The results obtained are of particular importance for the public policy decision makers, as the changes in FDI determinants require the adaptation of public policies in the CEE countries in order to remain attractive for foreign investors.
