Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212541 
Year of Publication: 
2004
Series/Report no.: 
BOFIT Discussion Papers No. 10/2004
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
Abstract: 
This paper investigates the importance of factor endowment vis-à-vis institutions in explaining the locational choice of foreign investors during the 1990s.Using dynamic panel estimation on data for transition economies, we find that low labour costs, bureaucratic efficiency ("institutions"), agglomeration economies and natural resource abundance are key factors explaining foreign investors' decisions.However, sampling proves fundamental as these overall determinants mask deep and, so far empirically unexplored, differences between groups of recipient countries.For example, for the former Soviet Union economies we estimate that labour costs are no longer crucial, but abundance of natural resources and (interestingly) lower levels of human capital are.For Eastern Europe, we find that external liberalisation (one aspect of economic reform) is crucial in foreign investor's decisions.The main message is that minimising sampling biases and accounting for previously omitted variables yields a different, much richer picture than previously available.
Subjects: 
Foreign direct investment
dynamic panel estimation
transition economies
JEL: 
F21
O16
C33
P27
Persistent Identifier of the first edition: 
ISBN: 
951-686-962-9
Document Type: 
Working Paper

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