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

In this paper, we utilize firm-level data on foreign firm manufacturing plants in four Central and Eastern European Countries, in order to trace their location and estimate the determinants of their choice processes. At this purpose, we use a nested logit model as developed by McFadden (1974). Several reasons explain the need for mapping FDI. First of all, this would help to understand the real competitiveness of regions and countries in providing location advantages able to complement MNEs’ organisational and internalisation advantages. Secondly, it would directly show 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 disadvantage areas and thus correct potential regional imbalances. Main results show that sector specific factors affect the choice of final location. These unobserved characteristics influence both the determinants and the structure of MNEs location choice process.