Determinants of Inward Foreign Direct Investment The Case of European Developing Economies

Foreign Direct Investment (FDI) has been viewed in recent years as an important tool for economic development. This paper explores in detail the determinants of inward FDI from a set of developed source countries into European developing economies. The analysis starts with a conceptual framework, continues with a brief literature review and an overview of FDI in the region, and moves on to the econometric specification. A gravity model was chosen as the benchmark equation and was then built upon, to analyse the behaviour of the chosen variables for the developed economies included in the sample during 1992-2013. The main purpose of the research is to identify whether countries in the Balkan area: Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Montenegro, Romania, Serbia, and Slovenia are affected by a location bias. Furthermore, the role of local technology levels is included as a determinant of inward FDI. Both hypotheses were found to be true, and the level of local technological advancement was found to overshadow the negative location bias.