DP3984 Why Does FDI Go Where it Goes? New Evidence from the Transitional Economies

Author(s): Nauro F Campos, Yuko Kinoshita
Publication Date: July 2003
Keyword(s): foreign direct investment, transition economies
JEL(s): C33, F21, O16, O23, P27
Programme Areas: International Trade and Regional Economics, Transition Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3984

This Paper examines the importance of agglomeration economies and institutions vis-à-vis initial conditions and factor endowments in explaining the locational choice of foreign investors. Using a unique panel data set for 25 transition economies between 1990-98, we find that the main determinants are institutions, agglomeration and trade openness. We find important differences between the Eastern European and Baltic countries, on the one hand, and the former Soviet Union countries on the other: in the latter group, natural resources and infrastructure matter, while agglomeration matters only for the former group.