Working Paper: CEPR ID: DP3984
Authors: Yuko Kinoshita; Nauro F. Campos
Abstract: This Paper examines the importance of agglomeration economies and institutions vis-à-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 1990-98, 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 former Soviet Union countries on the other: in the latter group, natural resources and infrastructure matter, while agglomeration matters only for the former group.
Keywords: Foreign Direct Investment; Transition Economies
JEL Codes: C33; F21; O16; O23; P27
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Institutions (D02) | FDI inflows (F21) |
| Agglomeration economies (R11) | FDI inflows (F21) |
| Trade openness (F43) | FDI inflows (F21) |
| Natural resources (Q30) | FDI inflows (F21) |
| Infrastructure (R53) | FDI inflows (F21) |
| Market size (L25) | FDI inflows (F21) |
| Labor costs (J30) | FDI inflows (F21) |