Shaping Competitiveness for Driving FDI in CEE Countries

Abstract

In the current situation, shaped by the relocation of multinational companies following the disruption of global value chains, the efforts for attracting foreign direct investments (FDI) should be better focused on enhancing the flows that create value in the economy, stimulate the local business environment, and are destined to sectors with high value added. The aim of this paper is to identify the factors shaping competitiveness in Central and Eastern European countries that also matter for the foreign investors' decision regarding location. We have taken an innovative approach in dealing with the large range of FDI determinants and we have used the machinelearning based random forest methodology to identify the most important predictors of FDI in CEE countries from a set of 15 indicators also present in the calculation of the European Regional Competitiveness Index 2019. Our results show that countries’ particularities, market size, digitalization of the economy, labour force characteristics (such as population in tertiary education and employment in knowledge-intensive services and high-tech manufacturing sectors), and economic potential market are the factors with the highest contribution in attracting FDI in the CEE region.

Keywords

• foreign direct investment
• competitiveness
• random forest
• central and eastern europe