1. Foreign Direct Investment
and Institutional Environment
in Transition Economies
Wirtschaftuniversitaet - Wien Henry Sichel
Doing business in C.E.E. Elizabeth Pyle

2. Profits
Corporate growth
Industrialized
economies
Transition
economies
Positive externalities
Human capital
intensification
Technological diffusion
Henry Sichel
Doing business in C.E.E. Elizabeth Pyle

3. Determinants of FDIs inflows
Quality of the Institutional framework
Private property rights
Law of contracts
Generally
Strong and limited government role
Quality of regulation
Formal institutions development
In transition
Perceived risk
economies…
Intellectual property protection

4. I – The evolution
Central- Baltic
South-East
Former U.S.S.R
% of total FDIs
1992 2004
Henry Sichel
Doing business in C.E.E. Elizabeth Pyle

5. II – Why?
Slow down in privatizations
Increase in net outflows
Repayments
Acceleration in privatizations…
… and greenfield investments
Increase in trust
Oil
Retail Henry Sichel
Doing business in C.E.E. Elizabeth Pyle

6. III – The Impact
Per capita GDP
FDIs
Beyond FDIs, other influential variables
Long-run growth
• Gross fixed capital;
• Labour;
• Human capital
+
Short-run movements
• Inflation;
• Budget deficit
-
Dependent variable: GDP per capita

7. IV – Which are the drivers?
Finding out the different aspects of Institutional Quality
1° Regulation
Legal
2° Property rights protection aspects FDIs
climate
3° Black market existance
4° Capital mobility
Economical
aspects
5° Wages level
Based on the Heritage Foundation 10 variables- Index

8. V –FDIs climate… and what else?
1° FDIs climate
2° Budget deficits
3° Typology of privatizations
4° Labour costs (positive effect!)
Henry Sichel
Doing business in C.E.E. Elizabeth Pyle