Determinants of FDI in Czech Manufacturing Industries between 2000-2007

Abstract

Determinants of FDI in Czech Manufacturing Industries between 2000-2007The Czech Republic (and its manufacturing industry) has been a successful recipient of foreign direct investment over recent years. Therefore, it is important to understand the decisions made by foreign investors where to place their investments and how to decide on their location between alternative industries. The aim of this paper is to find and estimate an econometric model describing the determinants of foreign direct investment (FDI) in the manufacturing industry of the Czech Republic between 2000-2007 and to make a review of recent literature on the topic. The econometric model includes several economic variables (for example labor, physical capital, R&D, profits per labor, Balassa index). Together with simple techniques of estimation (OLS, fixed effects) we used a generalized method of moments (GMM). In an effort to improve the result we used also a least trimmed squares estimator (LTS) from the class of robust estimators as a diagnostic tool for the heterogeneous pattern of data.