Determinants of inward FDI into Visegrad countries: empirical evidence based on panel data for the years 2000–2012

Abstract

The purpose of this article is to explain which factors are important determinants  for allocating FDI in the Visegrad Group countries (the Czech Republic, Hungary, Poland, Slovakia) by investors from the “old” EU member states. The article is divided into three main sections, except for the introduction and the final conclusions. First, we discuss the literature on the determinants of FDI. In Section 2 we introduce the applied research methodology. Finally in (Section 3), we present and discuss the empirical results. We selected 13 variables which were used in the estimation of the panel models, they include core gravity model variables such as the economy size (home and host nominal GDP per capita), geographical distance as well as augmented gravity model variables such as access to the sea and/or a common border. We also selected five efficiency-seeking variables (labour productivity, unemployment rate, minimum wage, corporate tax rate, investor protection index) as well as two  embership variables (EU, EMU). Adding such variables as “common V4 border”, “EMU membership” or “protection index” seems to offer a novel approach. FDI from EU-15 countries are allocated in V4 countries more because of the home and host market potential measured by GDP so they can be classified as pure mark-seeking horizontal  FDI. Currently investors from the mature EU-15 countries, whilst allocating FDI in V4 countries rather do not seek efficiency (as before), but the short distance is more important for them (than it used to be before the accession).