engleski

Investment Promotion Agencies and FDI Attraction in Central European Countries

The aim of this paper is to examine a) the importance of institutional infrastructure in fostering economic development by making the source country attractive for FDI, b) to determine empirically the factors that influence FDI attraction C) to examine the role and importance of action by investment promotion agencies to encourage foreign investment as a vital instrument that encourage new FDI inflows and contribute to the acquisition of new technologies. The following countries will be included in this study: Lithuania, Latvia, Estonia, Croatia, Slovenia, Hungary, Czech Republic, Slovakia and Poland. Their legal codes will be analysed and we will use the following econometric model to test the factors that encourage FDI attraction. FDIij, t =βj GDP Hostj, t +βi GDP Sourcei, t +γ RIAij, t + t+ +δ Inflationj, t +σ BITij, t +ρ XMHj, t + ujt FDIij, t stands for bilateral FDI flows (from country i to individual Central European country j) at time t. as . GDP Hostj, t is the logarithm of the real GDP of the host country( individual Central European country). GDP Sourcei, t is the logarithm of the real GDP of the source country namely the most important FDI source countries for selected countries. RIAij, t is a country dummy variable, which will take the value of 1 if the host country is the member of CEFTA, BAFTA or EU, otherwise it will be 0. Inflationj, t is the annual inflation rate in the host country at period t, to control for macroeconomic instability. We should expect a negative relation between inflation rates and FDI flows. XMHj, t is the logarithm of the sum of the host country’s exports and imports. It is a proxy of the openness of the host economy. We should expect a positive relation between this variable and FDI inflows. BITij, t Bilateral Investment Treaties: this is a variable that takes a value of one if both countries (host and source) have a bilateral investment treaty signed and in force at time t, and zero otherwise. This variable captures the average impact of these treaties on the FDI flows. We should expect a positive relation to FDI inflows. We will test the model for years from 1995-2012.

FDI; Investment promotion agencies

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