Determinants of Foreign Direct Investments in Transition Economies: Case of Commonwealth of Independent Countries

Abstract

While there has been voluminous research on the determinants of FDI for developed and developing countries, little has been done on this issue for transition economies, especially, for the Commonwealth of Independent States (CIS) countries. the present paper examines the determinants of inward Foreign Direct Investment (FDI) flows in the CIS during 1995–2010. the results of empirical analysis using panel data models, conducted with the purpose of identifying the factors that determine the motivation and decision of multinational companies (MNC) to invest in CIS economies, show that regardless of the presence of high investment risk in transition economies, the choice of FDI location always depends on a preliminary analysis of countries’ advantages (FDI stock, market size, abundance in natural resources) and disadvantages at macro level (fiscal imbalance and inflation). These pre‑existing conditions can always roughly predict the type of FDI (resource-seeking, market‑seeking, efficiency-seeking).