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Determinants Of Fdi In The New Eu Member States

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  • Oana Cristina POPOVICI

    (Institute for Economic Forecasting, Romanian Academy)

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.

Suggested Citation

  • Oana Cristina POPOVICI, 2016. "Determinants Of Fdi In The New Eu Member States," Romanian Economic Business Review, Romanian-American University, vol. 11(2), pages 173-182, June.
    • Handle: RePEc:rau:journl:v:11:y:2016:i:2:p:173-182
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    File URL: http://www.rebe.rau.ro/RePEc/rau/journl/SU16/REBE-SU16-A16.pdf
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    References listed on IDEAS

    as
    1. Oana Cristina Popovici, 2015. "Assessing The Impact Of The Labour Market Determinants In Attracting Fdi," Journal of Academic Research in Economics, Spiru Haret University, Faculty of Accounting and Financial Management Constanta, vol. 7(1 (March)), pages 59-72.
    2. Timothy Goodspeed & Jorge Martinez-Vazquez & Li Zhang, 2011. "Public Policies and FDI Location: Differences between Developing and Developed Countries," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 67(2), pages 171-191, June.
    3. Popovici Oana Cristina & Calin Adrian Cantemir, 2012. "Attractiveness Of Public Policies For Fdi In Central And Eastern European Countries," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 61-67, July.
    4. Lale Berkoz & Sevkiye Sence Turk, 2005. "Factors Influencing The Choice Of Fdi Locations In Turkey," ERSA conference papers ersa05p434, European Regional Science Association.
    5. Cheng Hsiao, 2007. "Panel data analysis—advantages and challenges," TEST: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 16(1), pages 1-22, May.
    6. Popovici Oana Cristina, 2015. "Assessing Fdi Determinants In Cee Countries During And After Transition," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 113-122, July.
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    Cited by:

    1. Jan Tecl, 2017. "Labor Taxes and Decision about FDI in the EU," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2017(2), pages 41-54.

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