The determinants of fdi flows from the eu-15 to the visegrad group countries - a panel gravity model approach

Abstract

Objective: The objective of this paper is to evaluate determinants of the general FDI flow to Visegrad countries and the effect of participation in EMU and EU. Research Design & Methods: It was decided to investigate how augmented Gravity Model of trade allows identifying and evaluating the significance of pull and push factors of FDI. In an empirical analysis of panel data Hausman-Taylor estimator was used because of the time-invariant variables presence. Findings: While investment decisions regarding the choice of country are determined by the size of the target market, the distance is still a negative factor in creation of FDI volume. Additionally, it was proven that membership in EMU, differences in taxation, historical background, access to the sea and prices stability have significant impact of FDI stock formation in each country belonging to V4. Is was also noted that Poland became a leader of the V4 as well as EU-12 FDI market sourcing from the old EU Member States. Implications & Recommendations: It is necessary to develop an "FDI attracting mechanism" using existing resources. Business regulations and taxation policy as well as main macroeconomic variables which are responsible for the economy standing are also examined as attracting the FDI flow. Contribution & Value Added: The originality of this work lies in studying some aspects of FDI inflow into the group of both similar and different countries in economic measures terms.Article type:research paper.