Regional analysis of foreign direct investment in Lithuania

Abstract

Foreign direct investment (FDI) flows during recent decades have a clear upward trend, but the dynamics of the determinants of FDI is not fully determined. FDI flows and their causes in the scientific literature are usually analysed in a national level. However, foreign entities investing capital abroad take into account not only the overall situation in the capital market or the constraints of the economic activity in the potential recipient country but also pays attention to the individual characteristics of the regions of the country. It is closely related to the research problem ““ it is questioned why some of regions of the same country are able to attract FDI, while others do not. Therefore it is very important to identify the main differences between FDI in the regions and to evaluate the potential of the regions. Therefore this research paper is focused on the FDI in the counties of Lithuania. The objective of this study is to assess the differentiation of FDI in the counties of Lithuania and determine the essential elements of FDI allocation, their dynamics, and potential of the regions. This research is based on theoretical and statistical sources. Scientific analysis of FDI enables to focus on the most important aspects of FDI factors. The quantitative assessment of FDI in the counties of Lithuania is based on statistical database information and econometric models. In order to identify and assess the factors of FDI differentiation in the counties of Lithuania authors conducted an econometric panel data models: fixed constants, fixed effects, random effects models. Undoubtedly, the methods used in the research are particularly important because they determine the results. The study uses the following methods: abstract, systematic comparative, logical analysis, analytical““critical method, panel and cross-sectional data models. FDI regional analysis includes the identification of FDI key factors, the assessment of FDI trends, the evaluation of the impact of economic-social factors to FDI in the counties of Lithuania, and the assessment of counties potential to attract FDI. The analysis indicates following conclusions. FDI results the evident changes in the markets, in the countries oriented on capital export or import, as well as in their countries. Industrial cooperation, international commitments combines capital markets and stimulates the generation of FDI. It is related to the level of economic development, legal, political, environmental factors, and the potential of the regions of recipient country. Also, some foreign investors significantly focus on low operating costs; the others give priority to business and technological specialization, scientific progress. Foreign direct investment (FDI) flows during recent decades have a clear upward trend, but the dynamics of the determinants of FDI is not fully determined. FDI flows and their causes in the scientific literature are usually analysed in a national level. However, foreign entities investing capital abroad take into account not only the overall situation in the capital market or the constraints of the economic activity in the potential recipient country but also pays attention to the individual characteristics of the regions of the country. It is closely related to the research problem ““ it is questioned why some of regions of the same country are able to attract FDI, while others do not. Therefore it is very important to identify the main differences between FDI in the regions and to evaluate the potential of the regions. Therefore this research paper is focused on the FDI in the counties of Lithuania. The objective of this study is to assess the differentiation of FDI in the counties of Lithuania and determine the essential elements of FDI allocation, their dynamics, and potential of the regions. This research is based on theoretical and statistical sources. Scientific analysis of FDI enables to focus on the most important aspects of FDI factors. The quantitative assessment of FDI in the counties of Lithuania is based on statistical database information and econometric models. In order to identify and assess the factors of FDI differentiation in the counties of Lithuania authors conducted an econometric panel data models: fixed constants, fixed effects, random effects models. Undoubtedly, the methods used in the research are particularly important because they determine the results. The study uses the following methods: abstract, systematic comparative, logical analysis, analytical““critical method, panel and cross-sectional data models. FDI regional analysis includes the identification of FDI key factors, the assessment of FDI trends, the evaluation of the impact of economic-social factors to FDI in the counties of Lithuania, and the assessment of counties potential to attract FDI. The analysis indicates following conclusions. FDI results the evident changes in the markets, in the countries oriented on capital export or import, as well as in their countries. Industrial cooperation, international commitments combines capital markets and stimulates the generation of FDI. It is related to the level of economic development, legal, political, environmental factors, and the potential of the regions of recipient country. Also, some foreign investors significantly focus on low operating costs; the others give priority to business and technological specialization, scientific progress. The biggest part of FDI in Lithuania is assigned to manufacturing centres. Especially, small counties of Lithuania attract homogenous FDI dominated by industrial activities. The structure of FDI is more diverse in bigger counties ““ there FDI is oriented to wholesale and retail trade, transport, accommodation and food service activities, professional, scientific and technical, financial and insurance, information and communication activities. Despite of well-developed infrastructure in all regions of Lithuania, foreign capital specialization is revealed in counties. Foreign investors take into account the individual regional characteristics of the potential capital beneficiaries. As a consequence, FDI in Lithuania is distributed very unevenly: small counties receive significantly less FDI comparing to the big ones. The performed panel model analysis revealed that FDI differentiation in the counties of Lithuania is strongly influenced by the level of economic development, labour qualification, labour costs. In the case of the significant deterioration of the economic-social situation in each county separately, the most significant loss of FDI would be incurred in the biggest counties of Lithuania. In order to equalize these mentioned regional disparities, it is very important to achieve sustainable micro-economic and macro-economic policies and supervise their activities. It should be also Free Economic Zones, industrial parks, innovative valleys performed. Detailed analytical studies of potential investments should be conducted while seeking to reduce regional economic-social differentiation. This would promote the integration of Lithuanian and foreign business entities and significantly increase FDI.