ESTIMATING THE BILATERAL FOREIGN DIRECT INVESTMENT FLOWS IN TRANSITION ECONOMIES

The paper employs a gravity model augmented with institutional related factors to study the determinants of bilateral FDI flows between South East European Countries (SEE-5) and Central East European Countries (CEE-10) on one hand, and European Union Countries (EU-14) on the other hand, on a yearly time span 1994-2010. The study applies different linear estimation technique like GLS and nonlinear estimation techniques, like Random Effect Tobit and Poisson-Pseudo Maximum Likelihood. The findings of the paper suggest that the bilateral flow of FDI between countries is determined by market size factors of both host and source countries and transaction cost factors between countries, as well as by the institutional performance of host countries.

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