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Abstract
This article uses a partial adjustment framework to examine the determinants of FDI stocks of ‘old’ EU member states in 10 transition countries that have now joined the EU. A dynamic panel analysis reveals that equilibrium FDI stocks are determined by traditional variables such as market potential and unit labour costs. Adjustment towards equilibrium is rapid. The relationship between FDI and the privatisation process is complex. Whereas direct privatisation strategies positively affect the equilibrium FDI stock, non-direct privatisation schemes negatively affect the speed of adjustment towards the equilibrium. Privatisation history seems to increase equilibrium FDI stocks, independently of the method applied.
Notes
1. See e.g. Bevan and Estrin (Citation2004), Bevan et al. (Citation2004), Buch et al. (2004), Carstensen and Toubal (Citation2004), Chakrabarti (Citation2001) and references therein, Cheng and Kwan (Citation2000), Garibaldi et al. (Citation2001) and Holland and Pain (Citation1998), Kinoshita and Campos (Citation2003). Resmini (Citation2000)
2. Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovak Republic and Slovenia, which became members in May 2004, and Bulgaria and Romania, which became members in January 2007.
3. Austria, Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, Portugal, Spain, Sweden and the United Kingdom.
4. There were no data available for Romania.
5. For example, in a given year in a specific country direct sales were commonly used for privatisation but also some voucher schemes were applied. Direct would then be 1, Voucher 0.5 and Insider 0. Should only direct sales have been used, Direct would be 1, Voucher 0 and Insider 0. If no privatisation took place, all three variables equal zero. For a given year and a given country, it is not possible for two variables to take the same score, except zero.
6. A solution to is
. For the initial level at t = 0 we have
. The initial gap thus equals A. The gap will be halved when
. With
this is the case after 1.94 periods.
7. Recall that the variable is defined as bilateral trade as a percentage of source country GDP.
8. The first-wave countries are the Czech Republic, Estonia, Hungary, Poland and Slovenia; the second wave consists of Bulgaria, Latvia, Lithuania, Romania and the Slovak Republic. In 2000 it was announced that eight of the 10 applicants would be entering the EU in 2004. The difference between first and second wave then disappeared. Only Bulgaria and Romania were anounced as entrants at a later stage.
