How to Catch Foreign Fish? FDI and Privatization in EU Accession Countries
26 Pages Posted: 23 May 2006
Date Written: August 2005
We examine the determinants of FDI stocks of 'old' EU-members in ten accession countries. Our partial adjustment framework results in a dynamic panel data analysis. In addition to the traditional variables, such as market potential and unit labour costs, we find institutional development to be a robust determinant of equilibrium FDI stocks. The adjustment towards equilibrium is rapid. The relationship between FDI and the privatization process is complex. Non-direct privatization schemes negatively affect the speed of adjustment, whereas direct privatization strategies positively affect the equilibrium itself. Privatization history increases equilibrium FDI stocks, independently of the method applied.
Keywords: foreign direct investment, privatisation, partial adjustment
JEL Classification: F20, F23, P33
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