FDI performance: a stochastic frontier analysis of location and variance determinants

Marie M. Stack, Geetha Ravishankar and Eric Pentecost

Applied Economics, 2015, vol. 47, issue 30, 3229-3242

Abstract: The opening up process of the eastern European countries was marked by greater integration of FDI with their western neighbouring countries. Using the single-step ML approach to stochastic frontier analysis, the location and variance determinants of FDI are estimated using the knowledge capital (KK) model framework. The findings, based on a panel of bilateral FDI stocks from 10 western to 10 eastern European countries over the 1996-2007 period, suggest FDI is determined by both horizontal and vertical motives while the process of liberalization and infrastructural developments significantly reduces the variance of FDI. In using a stochastic frontier specification of the KK model, the efficiency of FDI performance is identified relative to maximum levels. The bilateral efficiency scores suggest a mixed performance, indicating scope to improve the efficiency of FDI.

Date: 2015
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DOI: 10.1080/00036846.2015.1013612

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