The Determinants of FDI in the Central and Eastern Europe: The Impact of the European Integration

Author:Hanna Makhavikova
European Integration - Realities and Perspectives. Proceedings 2015
The Determinants of FDI in the Central and Eastern Europe:
The Impact of the European Integration
Hanna Makhavikova1
Abstract: The amount of FDI inflows to the Central and Eastern Europe increased dramatically during the
last two decades. This article is aimed at identifying the ability of the Central Eastern European countries to
attract FDI in the context of European integration, and at estimating the most important factors that influence
the decision of foreign investors to invest in the region. Despite the b road research has been devoted to define
the FDI determinants, the literature dealing in particular with the role of the European Union in the
mobilization of FDI is rather scarce, and these findings are very discrepant. In order to understand facto rs that
influence the location of FDI, we employ an empirical model for the period of 19 92-2013 for twenty CEE
countries. This study reveals th at the most important determinants of FDI in CEECs are the market size, cost
of labor and the European integration . The results of the research can be used to estimate the effect on FDI
inflows from a prospective additional Eastern expansion of the EU by the countries currently not within the
Keywords: FDI; transition economies; EU accession; panel econometrics
JEL Classification: F15; F21; C33
1 Introduction
After the fall of communism in 1991, the transition economies in Central Europe, Southeast Europe,
and Eastern Europe have experienced a unique type of political and economic change in modern time.
Following liberalization policies initiated by most of the CEE countries in 1990s, the post-soviet
countries started dynamically integrating into the world economy and in particular in the EU. The time
of the integration coincided with the increase of the importance of the FDI.
These countries have been great attention of developed and emerging economies associated with
moving FDI into this region, and the integration with the EU can be viewed as a determining element
of the operating business environment. However, after more than two decades from the beginning of
transition of former centrally planned economies in Europe it is still difficult to assess the most
important factors that influence the decision to invest in a particular country, because each country
started its own transition course with a different economic potential, policies, and resource
1 Otto-von-Guericke University Magdebu rg, Germany, Address: Universitätsplatz 2, 39106 Magdeburg, Germany, Tel.: +49
391 6701, Corresponding author:

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