This thesis examines the principal economic factors explaining firms' foreign direct
investment (FDI) location decisions into 13 Central and Eastern European countries
(CEECs) between 1997 and 2007 using discrete choice econometric methods.
The first part employs Meta-analysis to systematically summarise, integrate and
synthesise the results of empirical studies that analyse two main reasons why
multinational enterprises (MNEs) locate their investment abroad: access to foreign
markets and reducing productions costs. A large number of factors related to model
specifications, dataset characteristics and methodologies in the primary studies explain
the variation in the estimates of the market size and labour costs effects on FDI across
the studies. Furthermore, the existing empirical literature on the market size effect on
FDI is prone to publication bias more than the literature on the labour costs effect on
FDI, as papers with statistically significant and larger market size effect on FDI are more
inclined to be published in international journals.
The second part employs four alternative discrete choice methodologies, including the
Mixed logit (ML) model and the Latent Class (LC) model approaches to capture the
main locational determinants of over a 1000 individual firm-level FDI location decisions
in 13 CEECs between 1997 and 2007. The results show that the choice where abroad to
invest does not only depend on the opportunities offered by foreign markets and
industries but also on investing firms' individual characteristics. These results support
the presence of heterogeneity in the investment location decisions, which is not only
revealed by statistically significant interaction terms, but also by statistically significant
standard deviations of the random parameters in the ML model and statistically
significant class-specific explanatory variables in the LC model.
A Doctoral Thesis. Submitted in partial fulfillment of the requirements for the award of Doctor of Philosophy of Loughborough University.