REGIONAL COOPERATION AND ECONOMIC INTEGRATION

PART V:
the association process earlier (Zakharov, V. and Kusic, S., 2003, pp.8). That explains
the role of FDI in the acceleration of the EU integration process.
Taking into account the importance of FDI for the economy, governments of the EU
candidate countries, are faced with the challenge how to attract more foreign direct
investment. To answer the question, this paper uses data on EU FDI outward stocks per
capita in the EU candidate countries in the period between 1999 and 2007 to investigate
the determinants of foreign direct investments and to provide econometric estimation of
these determinants. It is a first attempt of that kind since the previous empirical research
on the determinants of FDI to EU accession countries focused on the world FDI to those
countries and not specifically on the part of FDI coming from the EU member countries to
EU candidate countries. This is of crucial importance for establishing a relationship, if any,
between the EU economic integration and foreign direct investment.
Before we proceed with econometric estimation of the determinants of FDI, in Section
2 we undertake a comparison of the world FDI patterns and FDI patterns of the EU
candidate countries. In Section 3 we investigate a number of determinants that could
influence the level of EU FDI outward stock in the EU candidate countries. In Section
4 we describe the econometric methodology for identifying the key determinants of
FDI and discuss the obtained estimation results. The last section concludes the paper
and recognizes some of the policy implications of the econometric results presented in this
paper.
1. Global FDI trends and FDI trends in the EU candidate countries
World FDI have increased considerably over the past two decades, reaching a record level
of $1.8 trillion in 2007, well above the previous all-time high set in 2000.
According to the World investment report 2008, the region of South-Eastern Europe, to
which the EU candidate countries (Croatia, Macedonia and Turkey) belong, has also seen
seven years of uninterrupted growth. FDI flows to these countries in 2007 increased by
50%, seting a new record of $86 billion.
As for the world FDI inflows to the EU candidate countries (Croatia, Macedonia and
Turkey), they are relatively small, but highly focused to Croatia. Macedonia has received a
negligible share of FDI among the EU candidate countries (See Table 1).
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Table 1: Distribution of world FDI flows among the EU -
- candidate countries by range, 2007
Range FDI Inflows FDI Outflows
Over $5.0 bn
Turkey
$1.0 bn to $4.9 bn Croatia Turkey
$0.1 bn to $0.9 bn Macedonia Croatia
Less than $0.1 bn
Macedonia
Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics) and annex table B.1. in World Investment
Report 2008