This article uses a newly developed database of foreign direct investments in the transition economies of Central and Eastern Europe, and panel data techniques to show that at the industry level, a consistent modelling of foreign direct investment flows needs to account not only for the traditional determinants considered in the literature, including the recent developments on gravity models, but also for variables linked to the institutional environment in which foreign direct investment is undertaken. The inclusion of variables affecting the risk, uncertainty and timing of foreign direct investment is in line with the main findings of the real option theory of investments. The design of an efficient, transparent and enforceable legal and institutional framework is shown to be a crucial determinant of foreign direct investment by modifying investors’ expectations. The article concludes with policy implications.

Economic determinants and institutional frameworks: FDI in economies in transition

ALTOMONTE, CARLO
2000

Abstract

This article uses a newly developed database of foreign direct investments in the transition economies of Central and Eastern Europe, and panel data techniques to show that at the industry level, a consistent modelling of foreign direct investment flows needs to account not only for the traditional determinants considered in the literature, including the recent developments on gravity models, but also for variables linked to the institutional environment in which foreign direct investment is undertaken. The inclusion of variables affecting the risk, uncertainty and timing of foreign direct investment is in line with the main findings of the real option theory of investments. The design of an efficient, transparent and enforceable legal and institutional framework is shown to be a crucial determinant of foreign direct investment by modifying investors’ expectations. The article concludes with policy implications.
2000
Altomonte, Carlo
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/40020
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