ABSTRACT
Foreign direct investment (FDI) has become one of the most prominent forms of private capital flows in many developing countries following the decline in official capital flows in the 1980s. The sudden collapse of the socialist system in the late 1980s opened up numbers of opportunities for the Central and Eastern European and former Soviet Union countries. This chapter examines the location determinants of FDI into 25 transition economies by utilizing the panel data between 1990 and 1998. Many policy makers in the transition countries are aware that FDI plays a key role in encouraging successful transition and many countries in the region offered various incentives to attract FDI in the country. The chapter reviews the classical theoretical framework on the location determinants of FDI. It reports regression results on the locational determinants of FDI and sheds light on the effects of FDI on economic growth.
