Why Does Fdi Go Where it Goes? New Evidence From the Transition Economies

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.Foreign direct investment;Transition economies;Foreign investment;fdi, market size, foreign investors, host country, external liberalization, trade dependence, direct investment, transition countries, manufacturing sector, trade openness, investment decisions, domestic market, trade flows, positive externalities, international trade, political economy, intermediate inputs, host countries, factor endowments, trade theory, technology spillovers, foreign capital, transnational corporations, direct foreign investment, multinational enterprises, technology transfer, tariff rates, trade regimes, foreign exchange, international investment, skilled labor, accession countries, world investment, trade volume, trade reform, host economy, economic outcomes, transport costs, internal liberalization, preferential treatment, trading system, trade liberalization, international investors, multinational enterprise, domestic industries, global market, multinational firms, host-country, market integration, import quotas, price stability, trade volumes, volume of trade, manufacturing firms, export markets, adjustment process, investment climate, liberalized trade