Does the East Get What Would Otherwise Flow to the South? FDI Diversion in Europe

Abstract

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The determinants of foreign direct investment into European transition economies

“…The new theory of FDI integrates OLI with general equilibrium models that focus on relative factor endowments (Helpman, 1984), proximity and concentration advantages (Brainard, 1997), and with gravity models of trade and FDI (Hejazi and Safarian, 1999). Following Buch et al (2003), we estimate a general gravity model but we also include variables to take account of comparative advantage and institutional factors in transition economies.…”

“…This development occurred contemporaneously with the process of transition from socialism to capitalism and the integration of the Central and Eastern European countries (CEEC) into the world economy through trade and capital flows, as Di and Buch et al (2003) discuss. FDI into transition economies may facilitate growth, promote technical innovation, and accelerate enterprise restructuring in addition to providing capital account relief (EBRD, 2002).…”

The effects of transition and political instability on foreign direct investment inflows

“…Other studies, in addition to the foregoing explanatory variables, have also examined in greater detail the role of natural resources, agglomeration economies and infrastructure (Campos and Kinoshita, 2003), of corruption (Smarzynska and Wei, 2000), of the methods of privatization, of specific policies that affect profitability of FDI and of host‐country labour skills (Carstensen and Toubal, 2004). Yet other studies have been motivated by the desire to identify the long‐term potential for FDI in the transition economies (Henriot, 2003), and to determine whether current FDI flows to these countries come at the expense of other potential host countries (Buch et al , 2001; Galego et al , 2004).…”

Home Employment Effects of EU Firms? Activities in Central and Eastern European Countries

“…As regards the possible diversion of FDI from other EU countries to the new EU member states, i.e., the so-called domino effect, Brenton, Di Mauro and Lücke (1999) found no evidence that increased FDI to Spain and Portugal in the late 1980s significantly reduced investment flows to other European countries. Di Mauro (2001) found no evidence that the increased FDI in CEEC in the mid-1990s happened at the expense of Spain and Portugal, nor did Buch, Kokta, and Piazolo (2003). 1 In our research, we focus on the parent country employment effect of FDI induced by international differences in factor endowments, since this may especially affect the relative wage or employment position of (lower-skilled) labor.…”