Foreign direct investment in the eastern European countries: Determinants and performance

Abstract

This paper assesses the determinants, changing nature and the performance of foreign direct investment (FDI) in the eastern European countries within the knowledge capital (KK) model framework. The findings from a panel of bilateral FDI stocks from 10 western European countries to 10 eastern European countries over the years 1996–2007 indicate the presence of both vertical and horizontal motives of FDI with a shift over time towards the latter. In identifying the efficiency of FDI integration relative to maximum potential levels, the stochastic frontier specification of the KK model indicates a mixed degree of FDI performance.