How former communist countries of Europe may attract inward foreign direct investment? A matter of institutions

Abstract

The aim of this paper is to emphasize the role of institutions to attract FDI in 11 former communist European Countries: eight new members of the European Union (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia) and three candidates to a future enlargement (Bulgaria, Croatia and Romania). In a first step we proceed to an analytical framework to understand the link between transition, institutions and FDI. In a second step we test an empirical model based on pooled data. The results of our empirical test confirm our expectation that FDI is sensitive to specific and local institutional arrangements.