FDI Flows Towards Ceecs: An Analysis on the Romania, Hungary and Slovenia's Performances

Abstract

The transformation of the aforetime planned economies in market economies created the need of capitals financed early on transition period by funds out coming from privatization programs. But soon, the internal funding was revealed insufficient and was substituted by the foreign direct investments (FDI) in the context of the liberalization of capital flows. Nevertheless, the Central and Eastern European Countries' (CEECs') part of FDI attracted in the whole world is insignificant given the part of the region in terms of territories and population. During the last few years, the progress of the privatization process and the favorable politics of attracting FDI produced an increase of FDI in the CEECs. The principal objective of our study is to explain the relative small and different FDI flows among the CEECs (especially in Hungary, Slovenia and Romania) through the FDI regulation, the advantages/disadvantages in the competition with other destinations and the degree of European integration. The study engages panel methods to identify the factors that stimulated or discouraged, between 1997 and 2000, the FDI flows from the European Union of 15 and United States to Hungary, Slovenia and Romania. Drawing upon the theoretical literature (Dunning's paradigm, the new theory of FDI, the Markusen's knowledge-capital model), we accept the gravitational approach.

Keywords: FDI, transition economies, panel, gravitational approach, EU adhesion

JEL Classification: F21, F23, P27, C33