The Locational Determinants of Foreign Direct Investment in Central Europe
Posted: 10 Jul 1997
Date Written: Undated
This paper analyzes the locational probability of manufacturing investment by foreign-based multinational companies (MNCs) in Central Europe. The analysis focuses on direct investment during the early years of the economic transition to capitalism, using 1990-93 individual plant data reported for new operations. The probability of country selection was estimated with a conditional logit model. Based on a review of the location literature concerning MNCs, seven independent variables are tested: per capita GDP, population, wage costs, political stability, tax holidays, the depreciation rate for equipment, and loss carryforward (the number of years a tax loss can be carried forward to offset taxable income). The model performed well. All the estimates had the expected sign. Six variables--per capita GDP, population, political stability, the depreciation rate for equipment, the length of the tax holiday, and loss carryforward--were statistically significant. Interestingly, all the policy variables tested appeared to influence the probability of location in Central Europe.
JEL Classification: F0
Suggested Citation: Suggested Citation