SEEU Review vol. 6 Nr. 2 (pdf) - South East European University

SEEU Review Volume 6, No. 2, 2010account for the progress made by the country under survey in infrastructureinvestment, allows for fixed effects variable across the countries, isthe error term.GDP per capita is used as a measure of market size in the host country. Ifthe main purpose of FDI is market seeking, or serving local market isexpected a positive relationship between FDI and GDP per capita.Asset seeking FDI has the main purpose acquisition of resources notavailable in the home country or low cost inputs such as labor. For thisreason in the model is used nominal wage as a proxy for the labor cost. Ifvertical FDI is dominant, we expect a negative sign of this coefficient.The impact of trade in FDI inflows is measured by openness indicator,total import and export volume as a percentage of GDP. In literature FDIcould be complement or substitute to international trade. There is not agenerally accepted approach to this issue. (Tadesse and Ryan 2002), haveanalyzed the relationship between FDI and trade and have concluded that ifthe main purpose of FDI is access to cheap factor of production, this impliesa geographical separation of the production process, therefore FDI could bea compliment to international trade.Table 4: Econometric EstimationDependent Variable: FDI, Method: GLS (Cross Section Weights),Sample: 2001 2007Variable Coefficient Std. Error t-Statistic Prob.GDPP 0.945068 0.370974 2.547533 0.0139CIT -0.035065 0.019798 -1.771120 0.0825OPEN 1.627202 0.760471 2.139728 0.0372WAGE -0.012505 0.004445 -2.813247 0.0069EBRD 1.427006 0.657951 2.168865 0.0348Fixed EffectsALB—C -9.587810BHE—C -10.77974145