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This paper examines the importance of agglomeration economies and institutions vis-a-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 and 1998, 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 CIS countries on the other: in the latter group, natural resources and infrastructure matter, while agglomeration matters only for the former group.
Although the theoretical literature has identified a large number of sizeable benefits from foreign direct investment (FDI), the empirical literature has been unable to establish a significant unconditional positive impact of FDI inflows on the rates of economic growth of host countries. One reason for this difficulty is that theory equates FDI to technology transferred, while in most countries and regions of the world FDI encompasses an array of arrangements that goes well beyond pure technology transfer. This paper tests for these effects in a set of countries in which FDI is purer technology transferred: the 25 Central and Eastern European and former Soviet Union transition countries between 1990 and 1998. Our main finding is that, in this appropriate setting, FDI has the direct and significant impact on economic growth theory predicts.
The period of transition from socialism to capitalism in parts of Europe and Asia over the past 25 years has attracted considerable interest in academia and beyond. From the Editors of Palgrave's iconic series 'Studies in Economic Transition' comes the Palgrave Dictionary of Emerging Markets and Transition Economics. This dictionary addresses the needs of students, lecturers and the interested general public to quickly find definitions and explanations of topics, institutions, personalities and processes in this historical phase of changing societies, which as such is not concluded. Today newly emerging market economies try to learn from the experiences of transition economies. Those who love The New Palgrave Dictionary of Economics will enjoy the format of this Dictionary, which uses an encyclopaedia-based approach, where articles not only define the terms but provide an overview of the evolution of the term or theory and also touch on the current debates.
Foreign Direct Investment (FDI) plays a very important role in economic development. The importance of FDI is even higher for transition countries where domestic capital is incapable of meeting the huge investment needs of the economy in the transformation process from planned to market economy.In the twentieth century international capital flows have taken over the lead from foreign trade, becoming the main power beyond of the world economy. In this context Foreign Direct Investment (FDI) played a crucial role. This role is important too in the modernisation of the emerging countries, as well as transformation of the transition countries from a planned to a market-based economy. Therefore, it should not be surprising why many countries are offering preferential incentives for foreign companies wishing to invest in their countries. This was present especially in the transition countries where preferential incentives were offered by almost each country. The rationale behind this conventional attitude is that FDI (in absence of domestic capital)will speed up the transformation process.
Macro statistics on foreign direct investment (FDI) are blurred by offshore centers with enormous inward and outward investment positions. This paper uses several new data sources, both macro and micro, to estimate the global FDI network while disentangling real investment and phantom investment and allocating real investment to ultimate investor economies. We find that phantom investment into corporate shells with no substance and no real links to the local economy may account for almost 40 percent of global FDI. Ignoring phantom investment and allocating real investment to ultimate investors increases the explanatory power of standard gravity variables by around 25 percent.
We contribute to the foreign direct investment (FDI) literature by providing first empirical evidence on the relative importance of location fac- tors for service and manufacturing FDI. This is of particular interest as the global stock of inward FDI in the service sector has become predominant in the last ten years. Based on a sectoral panel of eight new European member states in the period of 1998 to 2004 we perform a dynamic panel analysis al- lowing for individual adjustment periods across sectors. Results support our assumption that investment into the service sector, which is characterized by low installation costs, adjusts much faster to its desired level than manufactur- ing FDI. Furthermore, since services are mostly non-tradable, FDI into this sector is largely based on market-seeking motives while manufacturing FDI is also driven by international price competitiveness measured via real unit labor costs. (authorþs abstract).