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The Location of Foreign Direct Investment in the Central and Eastern European Countries: A Nested Logit and Multilevel Data Approach

Author

Listed:
  • Simona Rasciute

    (Dept of Economics, Loughborough University)

  • Eric J. Pentecost

    (Dept of Economics, Loughborough University)

Abstract

This paper generalizes the existing empirical literature on the determinants of the location of FDI, using a nested logit (NL) model and a novel three-level dataset to examine the factors explaining 1,108 foreign investment location decisions into 13 Central and Eastern European countries (CEECs) between 1997 and 2007. The NL model relaxes the multinomial logit model assumption of independence of identically distributed error terms and allows for testing if national boundaries affect the investment location choices of MNEs in the CEECs. In contrast to the existing empirical literature on the investment location choices, the Heteroskedastic Extreme Value model is used as a tool to reveal an appropriate nesting structure. The highly significant empirical results, based on a general underlying economic model of imperfect competition, show that the responsiveness of FDI in the CEECs to country-level variables differs both across sectors and across firms of different sizes and profitability. Hence the results of previous studies that used only country-level data or only industry- and firm-level data may be misleading.

Suggested Citation

  • Simona Rasciute & Eric J. Pentecost, 2007. "The Location of Foreign Direct Investment in the Central and Eastern European Countries: A Nested Logit and Multilevel Data Approach," Discussion Paper Series 2007_29, Department of Economics, Loughborough University, revised Dec 2007.
    • Handle: RePEc:lbo:lbowps:2007_29
    as

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    File URL: http://www.lboro.ac.uk/departments/ec/RePEc/lbo/lbowps/Nested_Logit.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Nested logit model; foreign direct investment; multi-level data; heteroskedastic extreme value model;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

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