Determinants of foreign direct investment in CEECS: The role of financial stability
Determinants of foreign direct investment in CEECS: The role of financial stability

Summary/Abstract: The globalization process has an important impact on the foreign direct investment flows. The FDI are increasingly important to developing countries, such as the Central and Eastern European countries. The EU accession has stimulated the investors’ confidence, and it has contributed to their economic development. According to the economic theory, the factors influencing the FDI are numerous and related to the country, sector and company’s characteristics. One classification groups these factors in three broad categories: economic policy of host country, economic performance and attractiveness of national economy. In this paper, we point out a new FDI determinant: financial stability. The financial system stability represents an attractive factor for the foreign investors and can be considered as a FDI determinant, alongside the categories mentioned above. Using a large sample of Central and Eastern European countries and panel data techniques, we investigate the impact of the financial stability on the FDI flows. The financial stability’s measure is based on a financial stability aggregate index and we use as control variables the number of inhabitants, the trade openness, the labor productivity, and the landing rate. The results show that the stability of the financial systems played a significant role in attracting FDI inflows in Central and Eastern Europe during the 1998-2008 period.

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