The determinant of FDI in Central, Eastern and South-Eastern Europe: lesson from the past and prospects for the future

This chapter provides a critical review of the literature on the determinants of FDI in European transition countries, focusing on the external factors that are likely to affect the location and the magnitude of foreign investments. The contribution of the chapter is to evaluate what we can say with relative confidence about FDI behaviour in transition countries, and what we cannot say because of the lack of evidence. To guide the analysis, the chapter starts with a summary of the major trends in foreign investments in Central, Eastern and South-Eastern 207 M997 - LIEBSCHER TXT.qxd 13/6/07 2:30 pm Page 207 Phil's G4 Phil's G4:Users:phil:Public: PHIL' European countries since the fall of the Berlin Wall. A brief discussion of the main theories on FDI determinants will precede the analysis of the empirical literature on such determinants in Central, Eastern and South- Eastern European countries. This critical review aims both at understanding general trends, and at highlighting the issues that still need extra analysis, such as similarities and differences across economic sectors and the geographical location of foreign firms within the considered countries. This analysis can serve both as a guide for a better comprehension of future patterns of FDI into the region, and as a starting point for future research areas.