DETERMINANTS OF FDI IN THE NEW EU MEMBER STATES

Oana Popovici

Romanian Economic Business Review, 2016, vol. 11, issue 2, 173-182

Abstract: The paper analyses the location attractiveness of the new EU member states for foreign investors. Our aim is to identify the main factors shaped by the public policies that underlie the FDI stocks in these countries. Based on the literature, these factors are grouped into four pillars: the quality of institutions, the quality of the labour market, the tax burden and the quality of the infrastructure. Their impact on FDI is tested using a fixed effects panel data approach in the ten new EU member states in Central and Eastern Europe. Each of the four pillars is built on the variables already identified in the literature as FDI determinants. The empirical analysis is applied in two stages: in the first stage, we established the variables that are significant for FDI for each of the four pillars. In the second stage, we built an econometric model based on the variables previously find as significant for FDI. We conclude that the market dimension, expressed as the volume of GDP, the unit labour cost, the development of the infrastructure and the level of macroeconomic stability given by the dimension of the public debt are the main determinants explaining the distribution of FDI in the new EU member states. Therefore, the main attraction to investors was the dimension of the country, as an exponent of the consumption market, and the cheap labour. The motivation of the investors in this region is market and resources seeking. The shift towards efficiency-seeking FDI can be signalled by the significance among relevant factors, according to the empirical results, of the variable related to the development of the telecommunication infrastructure.

Keywords: FDI; panel data analysis; labour market; institutions’ quality (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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