Attractiveness of Central and Eastern European Countries for Foreign Direct Investment in the Context of European Integration: The Case of Estonia

Foreign direct investment (FDI) flows in the world have increased rapidly during the last decade. Most of the FDI inflows are targeted to developed countries (78% in 1999, about fifth of the flows are going to developing countries and Central and Eastern European transition countries are the host countries for only 2% of the world FDI. The necessity of foreign investments in the transition countries is the result of industrial restructuring in post-socialist Eastern Europe and the Baltic countries. New markets, lower production costs and higher profit rates have been the main motivators in investing to the transition countries. Privatization programs of some of these countries have also facilitated foreign direct investments. Lankes and Venables (1996) and Lankes and Stern (1998) have noted that previous studies have shown predominance of market seeking investors in Central and Eastern European countries and factor cost considerations appeared to be of less importance for the majority of investments. A study by Meyer (1995) showed also that local market of Central and Eastern European countries is the primary motive in making foreign direct investments and factor costs played only a secondary role in investing to those markets at the beginning of the transition process. Several other studies (for example Barrell et al. 1999; Borsos-Torstila 1998; Éltetö 1999, Garibaldi et al. 1999; Guimaraes et al. 1997; Holland et al. 1998a, 1998b; Wang et al. 1995; Ziacik 2000 have also shown the significance of the determinants that are important for these types of investors in explaining the foreign investments’ flows into the transition countries. Two other types of foreign investors are not so important due to the relative lack of natural resources and strategic assets in Central and Eastern European transition countries. However, it has to be considered that there are quite big differences in the shares of different types of foreign investors between countries and sectors. A number of Central and Eastern European transition countries are in the middle of process of integration to the European Union now. Economic integration has impact on the movement of the foreign direct investment. The main aim of this paper is to find out the possible changes in attractiveness of investment climate of the Central and Eastern European transition countries in the context of European integration. Taking into account this aim, paper is divided into four parts: * At first, theoretical foundations of foreign direct investments movements and results of the previous empirical research are presented. * Then, theoretical foundations of the impact of regional integration on foreign direct investment flows is discussed. * After this, determinants of FDI inflows in Central and Eastern European countries and in Estonia are analyzed by using generalized component, regression and multinominal logistic analysis, * Finally potential changes in attractiveness of the Central and Eastern European transition countries are discussed and some economic-political recommendations for the governments are presented. REFERENCES: 1. Barrell, R., Pain, N. Trade Restraints and Japanese Direct Investment Flows. - European Economic Review, 1999, Vol. 43, pp. 29-45. 2. Borsos-Torstila, J. Determinants of Foreign Direct Investment Operations of Finnish Multinational Companies in Transition Economies in 1990-1995. Helsinki, 1998, 180 p. 3. Ëltetö, A. The Impact of FDI on the Foreign Trade of Central European Countries. – Materials of the workshop "Impact of Foreign Direct Investment on the International Competitiveness of CEEC Manufacturing and EU Enlargement", Budapest, November 19-20, 1999, 23 p. 4. Garibaldi, P., Mora, N., Sahay, R., Zettelmeyer, J. What Moves Capital to Transition Economies? – Materials of the IMF Conference "A Decade of Transition: Achievements and Challenges", February, 1999, 49 p. 5. Guimaraes, P., Rolfe, R.J., Doupnik, T., Woodward, D.P. The Locational Determinants of Foreign Direct Investment in Central Europe. – SSRN Journal, 1997, July, 17 p. 6. Holland, D., Pain, N. The Determinants and Impact of Foreign Direct Investment in the Transition Economies: A Panel Data Analysis. – Materials of the conference “Convergence or Divergence: Aspirations and Reality in Central and Eastern Europe and Russia” Buckinghamshire, 1998a, pp. 300-325. 7. Holland D., Pain, N. The Diffusion of Innovations in Central and Eastern Europe: A Study of the Determinants and Impact of Foreign Direct Investment. – Materials of the conference “Convergence or Divergence: Aspirations and Reality in Central and Eastern Europe and Russia”, Buckinghamshire, 1998b, 49 p. 8. Lankes, H.-P., Stern, N. Capital Flows to Eastern Europe and the Former Soviet Union. – EBRD Working Paper, 1998, No. 27, 31 p. 9. Lankes, H.-P., Venables, A.J. Foreign Direct Investment in Economic Transition: The Changing Pattern of Investments. – Economies of Transition, 1996, Vol. 4, No. 2 pp. 331-347. 10. Meyer, K. Direct Foreign Investment in Eastern Europe: The Role of Labor Costs. - Comparative Economic Studies, 1995, Vol. 37, No. 4, pp. 69-88 (cited by http://www.ebscohost.com pp. 1-16). 11. Wang, Z.Q., Swain, N.J. The Determinants of Foreign Direct Investment in Transforming Economies: Empirical Evidence from Hungary and China. – Weltwirtschaftlisches Archiv, 1995, Band 131, pp. 359-382. 12. Ziacik, T. An Assessment of the Estonian Investment Climate: Results of a Survey of Foreign Investors and Policy Implications. – BOFIT Discussion Papers, 2000, No. 3, 52 p.

The role of the nordic dimension for foreign trade relations of baltic states

Baltic Sea Region (BRS) can be seen as one good example of an attempt to integrate countries with different development levels. In the long run the Baltic Sea could be seen as the internal sea of European Union. However, as different are the development stages of BRS countries, different is their co-operation experience with European Union (EU). Foreign trade can be seen as one possibility for facilitating economic cooperation between countries. Foreign trade must have a positive impact on economic development of trading partners, when they are equal in the level of development, and foster economic growth even then, when their are unequal. Nevertheless, the one assumption of the theory is a free trade, but this assumption is not always fulfilled. Baltics as small transition countries have from one side not many possibilities for influencing foreign trade, because we are price and conditions takers. From other side, we are small enough to get more favourable conditions in trading with economic blocks and developed countries. Nevertheless, the better conditions compared to other third and associated countries, that we achieved for trading with EU, do not guarantee automatically higher volumes and more equal conditions in trade with above mentioned countries. Encouraging is the fact that European Union Council has approved the Action Plan for the Northern Dimension with external and cross-border policies of the European Union 2000-2003. The aim of current paper is to analyse the current situation in foreign trade of three Baltic States (Estonia, Latvia, Lithuania) in the context of fostering economic co-operation in Nordic Dimension. To accomplish this aim: - We analyse the openness or closeness of the trade in Baltic Sea region, find out its positive and negative aspects. -We will look at geographical distribution of foreign trade of three Baltics and analyse it. -We analyse the commodity structure of foreign trade of three Baltics with countries in BSR. -We will analyse the possibilities and risks of current situation in Baltics’ foreign trade in the context of economic globalisation and integration. Data of national statistic bureaus and national banks will be used for comparing the situation in Baltics’ foreign trade. The analysis will not cover transit trade and trade with services.

Regional Development Sustainability Analysis Consept

Problems associated with the qualitative analysis and quantitative measurement of sustainability, and opportunities for connecting the concept with the methodological basis of development assessment and the essence of the subject that values sustainability are dealed. The goal of article is to work out the basics for analysis of the regional development in a country in terms and framework of sustainability concept. The article starts by outlining the definition of sustainability, which is followed by an analysis of the nature of sustainability. The third subsection highlights the demands of the decision-making process in guaranteeing sustainability and then considers sustainability in a competitive environment. In the second part of article the sustainable development conception is implemented in regional development sustainability analysis

Die Entwicklung der Konzeption der Nachhaltigkeitsanalyse

This article concerns limits and development possibilities of the sustainability analysis concept. Discussed are the qualitative sustainability measurement, and connections to the methodological basis of development assessment and the essence of evaluating sustainability. At first the sustainability definition is tackled, followed by an analysis of the nature of sustainability. The third section highlights the requirements for decision making that guarantees sustainabilit

Attractiveness of Central and Eastern European Countries for Foreign Direct Investment in the Context of European Integration: The Case of Estonia

Foreign direct investment (FDI) flows in the world have increased rapidly during the last decade. Most of the FDI inflows are targeted to developed countries (78% in 1999, about fifth of the flows are going to developing countries and Central and Eastern European transition countries are the host countries for only 2% of the world FDI. The necessity of foreign investments in the transition countries is the result of industrial restructuring in post-socialist Eastern Europe and the Baltic countries. New markets, lower production costs and higher profit rates have been the main motivators in investing to the transition countries. Privatization programs of some of these countries have also facilitated foreign direct investments. Lankes and Venables (1996) and Lankes and Stern (1998) have noted that previous studies have shown predominance of market seeking investors in Central and Eastern European countries and factor cost considerations appeared to be of less importance for the majority of investments. A study by Meyer (1995) showed also that local market of Central and Eastern European countries is the primary motive in making foreign direct investments and factor costs played only a secondary role in investing to those markets at the beginning of the transition process. Several other studies (for example Barrell et al. 1999; Borsos-Torstila 1998; Éltetö 1999, Garibaldi et al. 1999; Guimaraes et al. 1997; Holland et al. 1998a, 1998b; Wang et al. 1995; Ziacik 2000 have also shown the significance of the determinants that are important for these types of investors in explaining the foreign investments’ flows into the transition countries. Two other types of foreign investors are not so important due to the relative lack of natural resources and strategic assets in Central and Eastern European transition countries. However, it has to be considered that there are quite big differences in the shares of different types of foreign investors between countries and sectors. A number of Central and Eastern European transition countries are in the middle of process of integration to the European Union now. Economic integration has impact on the movement of the foreign direct investment. The main aim of this paper is to find out the possible changes in attractiveness of investment climate of the Central and Eastern European transition countries in the context of European integration. Taking into account this aim, paper is divided into four parts: * At first, theoretical foundations of foreign direct investments movements and results of the previous empirical research are presented. * Then, theoretical foundations of the impact of regional integration on foreign direct investment flows is discussed. * After this, determinants of FDI inflows in Central and Eastern European countries and in Estonia are analyzed by using generalized component, regression and multinominal logistic analysis, * Finally potential changes in attractiveness of the Central and Eastern European transition countries are discussed and some economic-political recommendations for the governments are presented. REFERENCES: 1. Barrell, R., Pain, N. Trade Restraints and Japanese Direct Investment Flows. - European Economic Review, 1999, Vol. 43, pp. 29-45. 2. Borsos-Torstila, J. Determinants of Foreign Direct Investment Operations of Finnish Multinational Companies in Transition Economies in 1990-1995. Helsinki, 1998, 180 p. 3. Ëltetö, A. The Impact of FDI on the Foreign Trade of Central European Countries. – Materials of the workshop "Impact of Foreign Direct Investment on the International Competitiveness of CEEC Manufacturing and EU Enlargement", Budapest, November 19-20, 1999, 23 p. 4. Garibaldi, P., Mora, N., Sahay, R., Zettelmeyer, J. What Moves Capital to Transition Economies? – Materials of the IMF Conference "A Decade of Transition: Achievements and Challenges", February, 1999, 49 p. 5. Guimaraes, P., Rolfe, R.J., Doupnik, T., Woodward, D.P. The Locational Determinants of Foreign Direct Investment in Central Europe. – SSRN Journal, 1997, July, 17 p. 6. Holland, D., Pain, N. The Determinants and Impact of Foreign Direct Investment in the Transition Economies: A Panel Data Analysis. – Materials of the conference “Convergence or Divergence: Aspirations and Reality in Central and Eastern Europe and Russia” Buckinghamshire, 1998a, pp. 300-325. 7. Holland D., Pain, N. The Diffusion of Innovations in Central and Eastern Europe: A Study of the Determinants and Impact of Foreign Direct Investment. – Materials of the conference “Convergence or Divergence: Aspirations and Reality in Central and Eastern Europe and Russia”, Buckinghamshire, 1998b, 49 p. 8. Lankes, H.-P., Stern, N. Capital Flows to Eastern Europe and the Former Soviet Union. – EBRD Working Paper, 1998, No. 27, 31 p. 9. Lankes, H.-P., Venables, A.J. Foreign Direct Investment in Economic Transition: The Changing Pattern of Investments. – Economies of Transition, 1996, Vol. 4, No. 2 pp. 331-347. 10. Meyer, K. Direct Foreign Investment in Eastern Europe: The Role of Labor Costs. - Comparative Economic Studies, 1995, Vol. 37, No. 4, pp. 69-88 (cited by http://www.ebscohost.com pp. 1-16). 11. Wang, Z.Q., Swain, N.J. The Determinants of Foreign Direct Investment in Transforming Economies: Empirical Evidence from Hungary and China. – Weltwirtschaftlisches Archiv, 1995, Band 131, pp. 359-382. 12. Ziacik, T. An Assessment of the Estonian Investment Climate: Results of a Survey of Foreign Investors and Policy Implications. – BOFIT Discussion Papers, 2000, No. 3, 52 p

CONTRADICTIONS IN REGIONAL DEVELOPMENT ASSESSMENT: IN WHAT MEAN WE COULD SPEAK ABOUT ECONOMIC CONVERGENCE IN EUROPEAN UNION?

The objective of current article is to assess EU regional economic development imbalance and its change, by implementing an indicator system of regional development disparities. The quantitative measurement problems of regional development imbalance have not received sufficient attention. Barro and Sala-i-Martin (1991, 1995) have shown the properties of two complicated indicators of regional development imbalance dynamics - β-convergence and δ-convergence that are most widely used in empirical analyses. The EU official statistical assessment of regional economic development imbalance refers to the dispersion of regional GDP per inhabitant. This approach is based on a different methodology. We determined a number of additional regional development imbalance indicators and tackeld the following research tasks: * analysis of general basics and formation of comprerensive indicator system for assessment of regional disparities and its trends in economic development; * empirical analysis of imbalance and its dynamics between economic development of EU member countries on the base of the comprehensive indicator system using GDP in market prices and PPP (Purchasing Power Parity) prices; * eliminating of the price change impact from assessments of regional economic development imbalance dynamics. Our results explain the absolute and relative regional development imbalance and its dynamics in 1996-2008 in EU as a whole and in "old" and "new" member state groups. Regional development imbalances point to improvement necessities of quantitative measurement of regional economic development imbalance and its dynamics

Vergrößerung der regionalen Disparitäten der Wirtschaftsentwicklung Estlands

Regionen stehen unvermeidlich miteinander direkt oder indirekt in Konkurrenz. In erster Linie konkurrieren die Regionen um die Attrahierung von Kapital, um dem mobileren Teil der Einwohnerschaft eine attraktive Beschäftigung mit einem zufriedenstellenden Wohlstandsniveau anzubieten. Die großen regionalen Einkommens- und Wohlstandsunterschiede, aber auch Unterschiede im regionalen öffentlichen Dienstleistungsangebot führen zur Migration der aktiveren und begabteren Bevölkerung aus den wenig entwickelten Regionen in die mehr entwickelten oder in die Regionen mit einem größeren Entwicklungspotenzial. --Regionale Disparität,Wirtschaftsentwiclkung,Estland,Einkommens- und Wohlstandunterschiede,Entwicklungspotential

The role of the nordic dimension for foreign trade relations of baltic states

Baltic Sea Region (BRS) can be seen as one good example of an attempt to integrate countries with different development levels. In the long run the Baltic Sea could be seen as the internal sea of European Union. However, as different are the development stages of BRS countries, different is their co-operation experience with European Union (EU). Foreign trade can be seen as one possibility for facilitating economic cooperation between countries. Foreign trade must have a positive impact on economic development of trading partners, when they are equal in the level of development, and foster economic growth even then, when their are unequal. Nevertheless, the one assumption of the theory is a free trade, but this assumption is not always fulfilled. Baltics as small transition countries have from one side not many possibilities for influencing foreign trade, because we are price and conditions takers. From other side, we are small enough to get more favourable conditions in trading with economic blocks and developed countries. Nevertheless, the better conditions compared to other third and associated countries, that we achieved for trading with EU, do not guarantee automatically higher volumes and more equal conditions in trade with above mentioned countries. Encouraging is the fact that European Union Council has approved the Action Plan for the Northern Dimension with external and cross-border policies of the European Union 2000-2003. The aim of current paper is to analyse the current situation in foreign trade of three Baltic States (Estonia, Latvia, Lithuania) in the context of fostering economic co-operation in Nordic Dimension. To accomplish this aim: - We analyse the openness or closeness of the trade in Baltic Sea region, find out its positive and negative aspects. -We will look at geographical distribution of foreign trade of three Baltics and analyse it. -We analyse the commodity structure of foreign trade of three Baltics with countries in BSR. -We will analyse the possibilities and risks of current situation in Baltics’ foreign trade in the context of economic globalisation and integration. Data of national statistic bureaus and national banks will be used for comparing the situation in Baltics’ foreign trade. The analysis will not cover transit trade and trade with services