FDI in Central and Eastern Europe Countries: A Gravity Model
This paper explores the relationship between economic indicators and inward foreign direct investment (FDI) in the Central and Eastern Europe countries. We estimate a gravity model of FDI for ten countries covering the period 1993-2013, employing the Seemingly Unrelated Regressions Method. The results indicate that European inward investments are driven by the value of GDPs and the geographical distance. We find that institution stability, control of corruption, government effectiveness, and private sector policies are important factors driving FDI. The market size, the risk, the technological intensity, the geographic proximity and the privatization method explain a great part of bilateral FDI to the applicant countries.