Transition economies, FDI, Governance, Seemingly Unrelated Regression


Background and objective: The transition to market-oriented economies in CEECs entailed significant structural economic and institutional reforms. Over the past years, studies have investigated how these reforms affected foreign direct investment (FDI) inflows. However, the evidence remains debatable and varies across countries. This study provides new insights by considering the impact of macroeconomic factors, governance, and the moderating effect of governance on the macroeconomic drivers–FDI nexus.

Methods: A panel of 12 countries from 1991 to 2020 are analysed within the framework of conventional methods and Seemingly Unrelated Regression (SUR).

Results: Results robustly suggest that gross capital formation, macroeconomic stability, and trade openness are significant determinants of FDI at 1%–5% levels. We also observe cross-country differences in FDI performance. Governance does not moderate the relationship in the full sample, but additional results uncover heterogeneous FDI behaviour.

Conclusion: In order to attract more FDI in CEECs, policymakers should invigorate domestic macroeconomic policies and trade liberalisation.

Contribution: We advance literature by documenting new linkages between macroeconomic drivers, governance, and FDI across CEECs from the lens of SUR, a gap largely ignored by extant studies.

Creative Commons License

Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.