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Where do foreign firms locate in transition countries? An empirical investigation

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Abstract

Firm-level data sets on foreign manufacturing plants in four Central and Eastern European Countries are used in this paper, to trace their location and estimate the determinants of their choice processes. A nested logit model as developed by McFadden (1974) is used in the analysis. A central focus of the analysis is foreign direct investment (FDI) which is a good indicator of where location of foreign investments is made. Several reasons explain the need for mapping the location of FDI. First of all, it facilitates understanding the real competitiveness of regions and countries in providing location advantages able to complement multi-national enterprises’ (MNE) specific advantages. Secondly, it directly shows the distribution of the benefits usually associated with FDI. Finally, an understanding of FDI location decisions is important for policy makers who believe that MNEs may offer a positive contribution to the economic development of disadvantaged areas and thus correct potential regional imbalances. The main results show that sector specific factors affect the choice of the final location. These unobserved characteristics influence both the determinants and the structure of MNEs location choice process.

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Authors and Affiliations

  1. Department of Economics and ISLA, Università “L. Bocconi”, via Sarfatti 25, 20136, Milan, Italy

    Fazia Pusterla & Laura Resmini

  2. Università della Valla d’Aosta, Aosta, Italy

    Laura Resmini

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  1. Fazia Pusterla
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  2. Laura Resmini
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Correspondence to Laura Resmini.

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This paper has been written as a part of the Research Network on “The Impact of the European Integration and Enlargement on Regional Structural Change and Cohesion”, financed by the European Commission through the 5th Framework Programme. The authors are grateful to the other members of the Research Consortium and the participants at the international workshop “Modelling the Entrepreneurial and Innovative Space-Economy” organized by the Tinbergen Institute on 22–23 August 2005 for very helpful comments and suggestions provided on an earlier version of this work.

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Pusterla, F., Resmini, L. Where do foreign firms locate in transition countries? An empirical investigation. Ann Reg Sci 41, 835–856 (2007). https://doi.org/10.1007/s00168-007-0144-4

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