What Affects The Relationship Between Foreign Direct Investments and GDP Growth Evidence From EEC

Endrit Avdullari What affects the relationship between Foreign Direct Investments and GDP growth: Evidence from
: Evidence from Eastern Europe
What affects the relationship between Foreign Direct

Investments and GDP growth: Evidence from Eastern Europe
1. Introduction, organisational context and research objectives
The relationship between the economic growth and the level of FDI has always been a
matter of discussion between economists. The theoretical framework explaining the
relationship between FDI and GDP growth derives from two major models. The neoclassical
growth model states that FDI cause an increase in investments and their efficiency leading
to increases in growth. In the long-run, according to the endogenous growth model, FDI
promote growth, which is considered a function of technological progress, originating from
diffusion and spillover effects (Nair-Reichert and Weinhold 2001; Jones 2002). Nevertheless,
a number of studies have proved that FDI are not always correlated with GDP growth and
recent research has concentrated more in identifying the reasons behind these results
stressing the importance of economic and political economy of the countries under
consideration.
This study determines which variables are most often correlated to FDI in our sample of 11
EEC such establishing which ones are most influential and as a result deserve particular
attention from policy makers and entrepreneurs. A linear regression model will be built,
whenever possible, for each country in order to identify the variables that best explain the
variance of FDI. The study will also investigate whether there is any significant pattern or
difference between the countries where the relationship between GDP growth and FDI is
strong and the countries where it is not. The research tests whether each of the variables is
correlated with FDI and than a model that best explains the variance of FDI as a function of
these factors is constructed. The results are expected to provide a set of common features
of the countries that are able to absorb the advantages coming from FDI which as a result
would then be reflected in the economic growth. The findings will offer advice to policy
makers on which issues need to be addressed with priority. The conclusion will also be
helpful to executives of MNC on which countries offer a more positive environment to host
their investments and will provide information on the markets with future potential.
The selected determinants are GDP growth, human capital, market size, economic freedom,
political freedom, openness to trade, tax rate, GDP per capita, R&D, government spending,
real interest rate, accessibility to credit, infrastructure, inflation and unemployment. The
countries under investigation are Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Czech
Republic, FYR of Macedonia1, Hungary, Romania, Poland, Slovenia and Slovak Republic.
1
Now on will be referred to simply as “Macedonia”.
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Endrit Avdullari What affects the relationship between Foreign Direct Investments and GDP growth: Evidence from Eastern Europe
Macroeconomic data series were collected from highly reputable international bodies. the
research is mostly based on the WDI dataset from the WB but data from UNESCO, The
World Factbook from CIA, The Wall Street Journal and The Heritage Foundation publication
on freedom, The UN, The EC for Economic and Financial Affairs as well as other national
statistical institutes are also used for an eleven-year time frame from 1998 to 2008.
After testing the relationship between GDP growth and FDI for each country individually, the
results were confronted to other possible factors that have been suggested by the literature
to be influencing FDI. A regression model collecting all influential determinants was then
created to prioritize the impact of each determinant on FDI and check whether there was any
general pattern that explained the difference between the countries where the correlation
between FDI and GDP growth was significant and the countries where it was not.
This study tested the importance and prioritized previously researched settings affecting the
efficiency of FDI in regard to economic growth. Prior research has often concentrated on
testing or finding one or few individual influencing variables and aimed to either build a
model for the whole region or alternatively for a single country. This research does not
concentrate on one or few but includes a wide range of determinants. The countries are
divided into two groups. The first group includes those countries where FDI is correlated with
GDP growth and the second group includes those where this relationship is not significant.
The second group is further divided into subgroups according to their common
characteristics identified by the study. The main findings were collected from research in
different regions and/or temporal horizons and were tested in the selected time and region.
The results helped creating both a national and a regional framework that describe why
some countries are more successful than others in attracting FDI and where can each of the
countries under consideration focus in order to be more attractive to investors. In this paper,
the model will be statistically tested among 11 countries of CEE, in order to subsequently be
compared with the conclusions reached by the literature review. Previously offered factors
that are believed to determine the significance of the relationship between the GDP growth
and FDI will be tested in order to identify those more relevant to the countries under
investigation. The region has been chosen because CEE is one of the most dynamic regions
of the world due to the many political developments that have occurred there in a short span
of time and although close geographically there are significant differences between
individual countries such offering to this research a very diverse sample. All these countries
experienced a quick transition from being planned economies to adopting a free market
economic system with different approaches and inevitably, different results. The contribution
of this paper on the overall knowledge relays on the fact that there seem to be no previous
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studies that covered all the allegedly influential factors together, especially not in so many
EEC countries altogether. In addition, to the author`s best knowledge, there is no other study
offering both a national and regional insight in this context.
The second part of this paper will cover the literature available up to date which includes
findings of important studies and the evidence that they presented to support their theses.
Starting by offering a general background on how the theory has evolved, this paper
continues by presenting some of the most influential suggestions, results and methodology
from previously published works. Different views and the arguments on where they are
based are included in this section. In part three, details on how this research was carried out
and a closer view to the variables and the sample taken into investigations are presented.
Reasons on why this particular approach, data set, data sources and research design were
used are also explained in this section together with a closer look to the tests used. Main
findings are included in part four together with a selection of illustrating graphs and tables to
support the analysis. In part five main conclusions and recommendations are drawn adding
a note regarding this study`s limitations and other implications for future research. Other
relevant information such as the bibliography, full statistical results, the data and the
variables is attached at the end of this paper.
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2. The Literature Review
Multinational enterprises expanding their influence in foreign countries in order to have

control on local assets and production activities has been a growing trend of the world
economy (Mallampally and Sauvant 1999). Starting from the late 1980`s a rapid increase of
FDI was experienced almost anywhere in the world. This new striking economic feature
revitalised the debate on the net resulting effect of the costs and benefits that FDI inflows
produce on the economy of host country and/or vice-versa (Hansen and Rand 2006).
2.1 The relationship between FDI and GDP growth
Developing countries, rightly, do not appear to show as much interest in foreign bank lending
and portfolio investment as they do in FDI. The reason behind this preference is related to
the fact that countries are not very motivated by short-term profits (e.g. portfolio investments)
which are volatile and do not guarantee a steady income for the economy (Mallampally and
Sauvant 1999). Hence, since the 1990`s, FDI has become the leading source of external
finance. Long-term prospects for making profits in production activities which are not as
flexible and hence reflect stability motivates this choice. Many countries are inclined to
liberalise their policies toward MNC in order to benefit from the positive influence that the
investments are thought to have on a country‟s trade and industry. Policy makers have been
so eager to attract these investments that they even offered special incentives to foreign
enterprises like lower or short-term brakes in income taxes, import duty exemptions,
lowering of entry barriers, subsidies for infrastructure etc., sometimes even to the point of
damaging the free competition (Aitken and Harrison 1999; Blomström and Kokko 2003).
Thomas (2007) has collected many examples where EEC have been competing fiercely
using the above-mentioned incentives as well as providing free or discounted price on land
or opening agencies to help new foreign businesses reduce bureaucracy, time and costs
and provide all required information to them. Some countries have even offered free funds
coming from newly introduced schemes and investment-supporting legislation, all to attract
as much FDI as possible. The competition has become so fierce that some of these
schemes are being subject to abuse. Recently, ABF, the British manufacturer of Twining,
obtained a fund of 15 million USD coming from the European Regional Development Fund
granted to the Polish authorities to attract new investments. The move has drawn criticism
from the EC which is reviewing the situation since ABF is closing its factory in the UK such
suggesting that is in fact simply relocating its operations to Poland and not expanding its
activity as the scheme requires (O‟Murchu and Cienski 2010). All these efforts have leaded
to the unavoidable fact that the largest amount of investments from abroad in developing
countries has originated from FDI (Lipsey 1999).
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Casson (1990) sees the theory of FDI as a mixture of other existing theories. He argues that
it intersects with the theory of international capital markets which illustrates the risk-sharing
and financing agreements, the theory of the firm which specifies the location, management
and utilization of the output and the trade theory which indicates the location of production
and the destination of sales.
MNC are believed to bring new advanced technologies in developing countries such playing
an important role in their growth (Borensztein, Gregorio and Lee 1998). Since in developing
countries there exists a low efficiency of the capital, FDI inflows can help these economies to
increase their capital-worker ratio by introducing more productive technologies (Bosworth,
Collins and Reinhart 1999). The inflow of FDI was seen as crucial in resolving the issues of
EEC related to their scarcity of capital and low productivity (Sergi 2004). Investors,
especially risk seeking ones, are interested to expand in developing countries since
investments in capital-scarce countries are expected to yield a higher return (Asiedu 2002).
There is a general belief that FDI can give valuable help in transforming former communist
countries by adding significantly to the low amount of domestic savings directed to
investments. In contradiction to the Solow growth model1 where technology is assumed
exogenous, the growth literature supports the hypothesis that economic growth depends on
the level of domestic technology and its ability to adopt and adapt new advanced
technologies used by leading countries (Moosa 2002). Enterprises that are part of
transnational systems which consist of parents and affiliates, achieve important advantages
being linked to these channels through non-equity arrangements. If the environment is
conducive, these features can be harnessed successfully by domestic firms of the host
country (Mallampally and Sauvant 1999). Productivity gains, transfer of advanced
technology and processes, managerial skills, employee training, augmentation of domestic
savings and investments, profits from foreign exchange that originate from exports to other
countries, creation of new markets, capital flows, networks and channels are all positive
effects that originate from FDI and support the rationale for the efforts that are made to
attract FDI (Alfaro et al. 2004; Ram and Zhang 2002).
Many studies (e.g Hansen and Rand 2006; Carkovic and Levine 2005; De Mello 1997) have
been conducted to test the relationship between FDI and GDP growth in different contexts.
The results have proven to be rather extreme. Some of these studies (e.g. Bengoa and
Sanchez-Robles 2003; Alfaro et al. 2004) have found a considerably strong relationship
while others (e.g. Borensztein, Gregorio and Lee 1998) found no evidence of a significant
correlation between the two variables. The views can be grouped into two main categories.
1
The Solow model of growth: Y= AKα Lα-1 where Y= total output, A = technology, K= Capital and L=Labour. (Solow 1956).
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The first group argues that FDI assist in the transfer of technological and business skills and
understanding to the host country. In contrast, the second group believes that FDI will hurt
resource allocation and slow growth (Carkovic and Levine 2005). The effects of FDI on the
level, composition and growth of the output of the host country also depend to a large extent
on the macroeconomic policy in operation in that country. In general, it seems that FDI can
exert an impact on the output of the host country if it is possible to absorb surplus resources
and/or improve efficiency through alternative allocations (Moosa 2002).
In order to benefit from technological transfer, Xu (2000) has found that a minimum threshold
level of human capital needs to be reached. As Mansfield and Romeo (1980), have found in
their rather dated study, multinational companies tend to protect their technologies as long
as they can from domestic firms to strengthen their position in the local market. Neither they
nor Germidis (1977) found any significant evidence of technology transfer to local
competitors. However, recent evidence suggests that the technological environment has
changed completely in the last three decades. In the long term, technology diffusion might
occur from labour turnover by learning-by-observing or learning-by-doing as domestic
employees move from foreign to domestic firms (Alfaro et al. 2004). Alternatively, domestic
firms might benefit just from observing the products of these foreign firms (Blomström and
Kokko 1997). Balasubramanayam, Salisu and Sapsford (1996) stress that this process still
depends on the ability of the human capital to adopt and implement these practices.
In trying to determine whether FDI causes an increase on GDP or vice-versa, Hansen and
Rand (2006) found that is FDI which causes growth while GDP has no lasting impact on FDI.
This finding is important in that supports the hypothesis that by transferring “know-how” skills
and adapting new technologies FDI can significantly affect economic growth. The view
contradicts two earlier studies one by De Mello (1997) and the other by Carkovic and Levine
(2005) who concluded that there was no positive long-run impact to growth caused by FDI.
Moosa (2002) explains the effect of FDI on output by using the multiplier model of Keynes
(1936) which predicts that most of the income is spent for consumption and only what is left
after this is saved. This is a cyclical process where each time that the income increases, the
spending increases too by generating more income for the businesses which in turn can hire
more people adding further more to the total spending. The theory applies in a closed
economy so rightly Moosa (2002) recognises its limitations in quantifying the multiplier in the
real economy where domestic investment is highly affected by other factors such as imports
or taxes. This comes from the fact that in addition to the leakages coming from domestic
investments, FDI has other leakages on its own (e.g. remittances) which add to the foreign
claims on the domestic output. To complicate matters further, FDI may not generate extra
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income but instead be just a substitution for imports such explaining the different findings
from researchers in this subject.
On one hand, one could argue that given appropriate policies and a basic level of
development, FDI can play a key role in the process of creating a better economic
environment. On the other hand potential drawbacks do exist, including a deterioration of the
balance of payments, as profits are repatriated having negative impacts on competition in
national markets. As in many other fields of development economics, there is not universal
agreement about the positive association between FDI inflows and economic growth
(Hansen and Rand 2006). Different developing countries have been able to take advantage
of the presence of FDI in their economies but on average they have not been as successful
as middle or high-income countries which have shown a noticeably higher rate of success in
this process (Singh and Jun 1995). From the macro point of view FDI may lead to a rise in
output and income for the economy. This is particularly true for developing countries when
there is usually a high rate of unemployment and the capital is scarce. Being considered as
“foreign borrowing” but which does not have to be paid back, FDI will have a positive impact
on the balance of payments. The net effect on trade however, will depend on whether FDI
substitutes the current imports or whether its impact falls on exports. From the micro point of
view, a new transnational company entering the domestic market might upset the market
powers. It might increase the competition but it might also lead the market to a monopolistic
or oligopolistic environment (Moosa 2002). Unfortunately, an important reason why MNC
choose to invest in a country is often related to what is known as the “tariff jumping
hypothesis” which argues that if it is difficult to access a local market through trade, firms
may set up local activities with the simple goal of avoiding this restraint (Asiedu 2002) and
not to expand their affiliate so that they can export to other countries from there (Ram and
Zhang 2002). Another concern with MNC entering the domestic market is that it may not
lead to a rise in capital accumulation since generated profits might be repatriated in the form
of dividends, royalties etc. instead of being reinvested in local activity. When very powerful,
MNC can weaken government control over certain economic policies leading to unwanted
practices like cartels or pricing transfer such causing adverse effects on the market making it
less competitive (Lall and Streeten 1977). Obviously, by affecting capital accumulation, FDI
is seen as a major player in economic development and this fact is acknowledged by
conventional theories of economic growth. Nevertheless, not all FDI are founded by capital
from their home country. They may as well borrow from financial institutions of the host
country which would neutralise the positive effect of capital accumulation (Moosa 2002).
Undesirable effects of FDI that damage domestic trade and industry include use of
technologies that misuse the host country‟s factor proportions, damaging local businesses
7
through intense competition, concentrating only in the local market and not aiming to export,
as well as adapting and promoting inappropriate social and cultural norms which damage the
host country‟s traditions and inheritance (Ram and Zhang 2002).
2.2 The Determinants
Blomström, Lipsey and Zejan (1994) state that when a country becomes relatively rich, FDI
have a positive effect on economic growth. They measure the wealth in terms of GDP per
capita. Lower income countries find it difficult to attract FDI mainly because they lack
infrastructure facilities especially in crucial areas such as transport, communications and
information technologies (Obwona 2001). The view is also supported by Binici, Hutchison
and Schindler (2010) who suggest that income levels affect capital flows and cross-border
asset holdings. Agreed on principle, the matter is seen from a different perspective by Lane
and Milesi-Ferretti (2003). They associate a country with higher income per capita with lower
risk and conclude that since international investments are more risky than domestic ones, a
higher level of GDP per capita leads to an increase in international assets trade. In addition
to the importance of GDP per capita, a research of UNCTAD (1999) has found that the GDP
growth-FDI relationship depends also on the levels of other variables including political and
financial environment, education and trade of the country under consideration. Schneider
and Fry (1985) support the view on political environment, having found an inverse
relationship between FDI flows and political risk1 while Jaspersen, Anthony and Knox (2000)
and Hausmann and Fernandez-Arias (2000) did not find any important evidence on the
impact of political freedom on FDI. When it comes to economic freedom, there is general
agreement that it facilitates FDI (Bengoa and Sanchez-Robles 2003). For example, Lipsey
(1999) found that among ten Asian countries that he studied, the ones who had the highest
ranked economic indices were also the ones who had attracted more investments from
American firms.
Borensztein, Gregorio and Lee (1998) suggest that the growth effects of FDI can be
explained by the differences in the ability to absorb technology hence human capital and
R&D are crucial in this process. Hansen and Rand (2006) bring the point forward stating that
the least advanced is the technology, the smaller is the FDI impact on growth. They reject
the effects of GDP per capita, human capital, trade and accessibility to credit, recognising
however the importance of the economic and technological environment. The authors further
suggest that once a certain level of development as a whole is reached, the country can
harness the benefits originating from FDI. Bengoa and Sanchez-Robles (2003) have found
1
Political risk and political instability are the opposite of political freedom. High political freedom means low political risk and low
political instability.
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similar results adding to the discussion the importance of market liberalisation. Their findings
contradict with those of Blomström, Lipsey and Zejan (1994) who did not find evidence that
human capital is critical and with the findings of Bruno, Crinó and Falzoni (2004) who stated
that FDI tend to have a more positive effect on countries that have abundant unskilled
labour. Balasubramanayam, Salisu and Sapsford (1996) point out that developing countries
have relatively less trained human capital and as a result technological progress does not
account for a big part of growth. Because of a noticeable gap in levels of human capital
between developed and developing countries, it becomes very challenging for developing
countries to undertake investments in R&D since they would rarely be able to generate new
significantly useful knowledge having a less trained human capital.
Beck, Levine and Loayza, (2000) support the idea that a developed financial system
stimulates growth. Martin and Rey (2003) have found that financial integration decreases the
cost of capital. Borensztein, Gregorio and Lee (1998) go further stating that it is a two way
relationship: capital generates FDI and FDI generate per se more capital. A very important
point regarding the financial environment and the adoption of best technological practices is
made by Alfaro et al. (2004) who state that if access to credit is restricted, FDI cannot be
fully efficient since local entrepreneurs would not be able to acquire these new technologies
coming from FDI, even if they have acquired the “know-how”, due to financial restraints. In
this kind of environment the market would limit the positive externalities of FDI as a result
pushing investors to move to countries where accessibility to credit is higher. Moore (2010)
gives particular attention to the financial development because he considers it as essential in
deregulating capital markets restriction as well as developing financial innovations which
leads to a wider capital market and investment opportunities. Furthermore, this creates a
positive incentive for foreign banks which in turn generates even more liquidity for the
market. Kinda (2010) indicates that the studies that have investigated this relationship have
found FDI to be encouraged by financial development.
The level of additional tax revenue earned by the government from MNC and the amount of
funds going back from the affiliate to the mother company at the home country are two
important counteracting factors identified by Feldstein (1994). He believes that their
influence is decisive on the overall effect on growth and finds that the tax rate imposed to
MNC affects their decision to invest or not in a foreign country only when this rate exceeds
or falls below the existing tax rate on the originating country. Wei (2000) generalises
furthermore stating that the relationship between FDI and the tax rate is always negative. A
wide number of studies have investigated this relationship but very few of them have found
any evidence showing that investors are significantly influenced by the tax policy. The
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general agreement seems to be that tax rate affects the volume of FDI only when market
and political factors are seldom equal. Still, the tax rate effect seems to vary according to the
firm and the local characteristics of the country (Morisset and Pirnia 2000). For example,
export-oriented companies (Gusinger 1986) and companies financed by retained earnings
are more sensitive to tax advantages (Feldstein 1994). Start-up companies highly appreciate
incentives that help them avoid or postpone initial expenses (Rolfe et al. 1993). Small
countries tend to have a small corporate tax rate in order to attract big companies (Morisset
and Pirnia 2000) etc. Nevertheless, policy makers still feel that significant differences among
neighbours or other countries with which they believe to be competing with in attracting FDI
are to be avoided whenever possible. The EU is an example of how countries can increase
pressure on different members to increase rates of certain taxes which are relatively lower
as for example income tax and taxes on the self-employed in the case of Greece (IMF 2009)
or the corporate tax in the case of Ireland (Barber 2010). Taxation policy is decided
unilaterally by national governments under EU law but the union pressured these two
countries in return of a bail-out package when they were experiencing financial difficulties.
Other cases include pressure on the UK crown dependencies of Isle of Man, Guernsey and
Jersey which have been asked to increase their corporate tax rate since some members of
the EU have expressed concerns that the policy does not coincide with the “spirit” of the
union (Sherwood 2010).
Barthel, Busse and Neumayer (2010) believe that openness to trade not only improves FDI
by increasing the ability of goods and services to flow freely but also reflects a positive
attitude toward foreigners and globalisation which investors appreciate. Nevertheless, their
research found that the relationship, although positive was not strong. However, on her
Africa-based study, Asiedu (2002) did find that openness to trade was crucial to every
country that aims to benefit from FDI. She also found that big market size also promotes FDI
while infrastructure has an important effect only on some countries. Kinda (2010) also
supports the view that infrastructure problems discourage FDI especially in developing
countries considering its availability critical in running an efficient business. The market size
is considered as determinant also by Bengoa and Sanchez-Robles (2003) because in large
markets MNC can exploit economies of scale. The view is put in doubt by Endres, Fuest and
Spengel (2010) who argue that growing simply in market size can even lead to negative
effects if the growth comes simply from a strong population growth and is not reflected in
real per capita terms. On the other hand, both global and regional markets are in continuous
integration. This has lead to greater trade liberalisation which has reduced the importance of
the market size which is still important but worth mentioning that now even small countries,
10
given the right incentives are provided, can compete to attract FDI (Blomström and Kokko
2003).
Ancharaz (2002) offers a helpful review of the most important studies that have tested the
importance of government spending. He has found that foreign investors pay particular
attention to the amount that the government spends in the host country and believe that the
size of the government reflects the attitude of the country towards foreign investments. The
general consensus is that a large amount of spending by the government is perceived as
harmful to markets and free competition when it goes beyond a certain optimal level. This
conclusion is often related to the fact that an investor might have to go through a long line of
bureaucracy leading to extra costs and potential inefficiencies including corruption. On this
line of logic, large government spending is considered as negative to FDI. The alternative
view is that a large amount of expenditure by the government may also be considered as a
sign of development and investment to productive sectors such as infrastructure or transport
to provide businesses a positive environment to invest efficiently.
Levy-Yeyati, Panizza and Stein (2007) found an inverse relationship between interest rate
cycles and FDI inflows suggesting that FDI inflows are expected to increase during
recession. Moore (2010) takes a more cautious approach stating that the impact of interest
rates may vary according to the level of GDP per capita, technology, labour quality,
institutional capability and their bureaucratic efficiency of the host country. His econometric
results indicate that in the sample of 108 countries the relationship is negative but it loses
significance when the market reaches a certain stage of final development.
The effects of inflation on FDI are also a matter of discussion. On one hand, inflation may be
a sign of an unstable macroeconomic environment. Different studies (Mehl and Winkler,
2003; Valdovinos, 2003) have found that in countries in transition, inflation has a negative
impact on growth. It does not stimulate long-term contracts forcing credit institutions to keep
liquid portfolios such increasing their costs and decreasing efficiency (Bordo and Rousseau
2006; Rousseau and Wachtel, 2001; De Mello 1997). It also has a negative impact on
investors since it reflects irresponsible policies which may lead to unstable exchange rate
regimes, excessive money supply and poor economic conditions. However, an interesting
point is made by Campos and Kinoshita (2003) who believe that in the initial stages of
transition, a positive relationship between inflation and FDI can lead to growth (e.g by
encouraging investments rather than savings).
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Barros and Cabral (2000) have found that a country which has a high unemployment rate is
expected to be more attractive to investors. Billington (1999) found the same results. He
suggests that unemployment encourages FDI since the situation implies to the investor that
the required labour will be available in the host country. However, Jones and Wren (2010)
stress that while unemployment attracts FDI, a very high rate will make the region
unattractive suggesting to entrepreneurs that it is depressed.
The study will take all of these factors into consideration and will investigate their impact in
order to establish whether there is any relationship between these determinants and FDI for
the countries of the selected sample. The study will also prioritize these factors according to
their impact and will check for patterns between the countries where FDI is positively
associated to GDP growth and the presence or not of significant correlations between
certain variables with FDI in these countries.
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3. Research Design and Methods
In their efforts to explain why FDI are associated with economic growth in some countries
and not in others, previous studies have based their research on one or few explanatory
variables and have tested their statistical significance (Levine and Renelt 1992). This paper
takes an alternative approach offering a wide view of the available knowledge on the subject
so far and then tests all the variables collected in each country separately. Macroeconomic
data series were collected from reputable international bodies such as the WB, The WSJ
and The Heritage Foundation, CIA – The World Factbook, The UN, EC for Economic and
Financial Affairs and other national statistical institutes for an eleven-year time frame from
1999 to 2008.
The study tested the influence of the following variables on FDI: GDP growth, human capital,
market size, economic freedom, political freedom, openness to trade, tax rate, GDP per
capita, R&D, government spending, real interest rate, accessibility to credit, infrastructure,
inflation and unemployment. Details on the variables can be found in Appendix I.
To test the FDI-GDP relationship the net FDI inflows and the GDP growth rate variables
have been used respectively as suggested by Borensztein, Gregorio and Lee (1998). All the
papers reviewed in this research that have found a significant relationship between the two
variables, have also found it to be positive. Both GDP growth and FDI can take negative
values. GDP growth can be negative when the economy contracts in any particular year and
FDI can be less than zero when the amount of investments leaving the country (FDI
outflows) is greater than the amount of the new investments entering the country (FDI
inflows).
“The net FDI inflows measures the net inflows of investment to acquire a
lasting management interest (10 percent or more of voting stock) in an
enterprise operating in an economy other than that of the investor. It is the
sum of equity capital, reinvestment of earnings, other long-term capital, and
short-term capital as shown in the balance of payments” (Alfaro et al. 2004:
94-95).
To measure the human capital, the number of years spent by male on secondary schooling
has been adopted as used by Barro and Lee (1994), since they consider it to be the most
significantly correlated with growth. Although their methodology has been used by a wide
number of other studies with less or no variation (See for example Castelló and Doménech
2002), Liberto, Mura and Pigliaru (2005) present a valid point when they criticise it for not
13
taking into consideration the quality difference between educational institutions. Barro and
Lee (1994) found this correlation to be positive. Based on the same study, to measure the
government spending, the ratio of government consumption (expenditure) to the GDP has
been used. Based on their findings we will be expecting FDI to be positively related to
human capital and to have a negative relationship with the government spending. However,
other studies (see for example Ancharaz 2002) have expressed alternative explanations on
how the correlation between FDI inflows and government size can also be positive when
investors see it as an effort to provide a more positive economic environment so we can
expect both results.
The WGI data on political freedom was collected by different institutes on behalf of and
published by the WB. It captures perceptions from enterprises, citizens and expert survey
respondents as reported by a number of survey institutes, think tanks, non-governmental
organizations and international organizations on the possibility that the government is
overthrown by any means other than those included in the constitution of the country. These
include terrorism and politically-motivated violence. The data range within the (-2.5: 2.5)
interval where higher values represent a more stable environment (Kaufmann, Kraay and
Mastruzzi 2010; The World Bank Group 2010). If significant, the correlation with FDI is
expected to be positive (Barro and Lee 1994). Thomas (2010) lists a large number of studies
and policy makers that have used this data set. In his critical study on this data set he also
list some of the concerns related to it including the comparability across countries over time,
bias in expert polls, and the questionable independence of the different sources used.
Kaufmann, Kraay and Mastruzzi acknowledge that the governance estimates is associated
with large standard errors but still claim that the methodology makes the WGI the most
informative individual data source and calculates estimated indicators as well as margin
errors. In our case, since the data can be either positive or negative we would expect a
positive coefficient if the index is greater than zero and vice-versa. To measure the
economic freedom data collected by the WSJ and The Heritage Foundation were used since
they offer an index which allows us to observe changes in the economic climate over time.
The economic freedom takes into consideration freedom to do business, to trade and to
invest as well as fiscal, monetary and financial freedom, level of government spending,
property rights, labour freedom and freedom from corruption. A grade is assigned to each of
these ten components for each country using a scale from 0 (no freedom) to 100 (maximum
freedom) and then the average of the results is calculated in order to find the overall
economic freedom index (The Wall Street Journal and The Heritage Foundation 2010).
Using the same data set in a different time-series for Latin American countries, Bengoa and
Sanchez-Robles (2003) found a positive relationship between FDI and economic freedom.
14
We will be expecting similar results for all the countries in our sample where the relationship
is significant.
Although the data sets of both political and economic freedom are widely used, there is still
much discussion about their validity. Besides the concerns listed in the paragraph above in
regards to measuring political freedom, based on the work of Thomas (2010), the data set of
economic freedom might in addition suffer also from high correlation between the used
indicators for calculation. As Thomas (2010) states, social scientists have continuously
developed quantitative methods to measure abstract concepts and they have concerned
with the issue of validity. He concludes that because the WGI are an important step ahead
in attempting to quantify the data, there relies the danger of prematurely accepting them as
valid. The data sets on political and on economic freedom will be used in this study being, to
the author`s knowledge, the most accurate yet, but since there is still discussion about their
validity, particular caution will be taken before reaching any conclusions in this subject.
Market size is measured simply by GDP level and a large number of studies consider this
variable as crucial in fostering FDI (see for example Asiedu 2002 or Bengoa and Sanchez-
Robles 2003). The relationship between the two variables is expected to be positive.
However, in our sample, all countries are part of either CEFTA or the EU so according to
Blomström and Kokko (2003) even small countries can be expected to have a strong
association between FDI and GDP growth since they can easily export within the trade area
which they are part of such benefiting from a high level of openness to trade to the common
market. Another condition is put in by Endres, Fuest and Spengel (2010) who believe that
market size is important only if is supported by a wide distribution of the wealth. Hence, we
might expect a more moderate effect of the market size in EEC compared to other countries
where wealth is distributed more evenly or to more integrated (in terms of freedom to trade)
regions of the world. Different authors measure openness to trade using different
approaches. It may be calculated as exports plus imports relative to GDP (Carkovic and
Levine 2005) or measured by the ratio of exports to GDP (Nair-Reichert and Weinhold
2001). The latter method was used for this study since we are interested to test whether
small countries that have a relatively small market size can benefit from FDI regardless of
their market size if they have a high openness to trade and from this point of view we are
interested only in the level of exports. Based on the available evidence presented,
openness to trade is expected to be positively related to FDI.
The development of financial intermediaries is measured by the accessibility to capital

calculated by the amount of domestic credit that financial intermediaries supply to the private
15
sector as a share of the total output as used by Beck, Levine, and Loayza (2000). They find
that the impact of financial intermediaries is significant and positive. Other studies might
have not always found the relationship to be significant (e.g. Barthel, Busse and Neumayer
2010) but no alternative point of view regarding the direction of the relationship was found so
it is fair to assume that any significant association between accessibility to capital and FDI
will be positive. The conditions of infrastructure in the host country are very important to
investors since they increase the productivity of the investment and as a result attract FDI.
The literature uses the number of telephones per 1000 population to measure infrastructure
and they are positively correlated with FDI (Asiedu 2002). We have used data collected by
the WB which simplifies the figure by calculating the figure per 100 people. The change is
only for practical purposes and implies no statistical difference. Kinda (2010) has also found
that the infrastructure is positively associated with FDI.
There is still discussion among researchers about which tax rates need to be considered
when trying to build a regression model. Several studies have used the nominal tax rate
which can be misleading since it does not consider tax rebates offered continuously to
various MNC (Morisset and Pirnia 2000). Devereux and Griffith (1998) have concluded that
the average aggregate tax rate has a greater influence on the decision of investors to where
to expand their activity. Based on this conclusion we have adopted the total average tax rate
in this study which accounts for deductions and exemptions. While different businesses are
attracted to different tax systems, on a national level tax rates seem to affect FDI either
when there is a noticeable difference between the countries that compete in attracting the
investment or when there is little or no difference between other economic and political
conditions (Feldstein 1994; Morisset and Pirnia 2000). In these circumstances its effect is
expected to be negatively correlated to the level of FDI.
GDP per capita is measured as GDP divided by the population number in the middle of the
year1. A higher level of GDP per capita is expected to attract more FDI especially for middle
and higher income countries (Obwona 2001). R&D is calculated as the amount of
expenditure for R&D as a share of the GDP. The more is spent in developing the technology
the more likely it is to attract FDI interested in the industry and adopt the use of these new
technologies which in turn will help other domestic companies and will ultimately increase
growth. As a result the relation between the two variables is believed to be positive. Real
interest rate is the rate of banks lending to prime customers after having been adjusted for
inflation. Although previous studies indicate a negative relationship with FDI, Moore (2010)
suggests taking a cautious approach since the business environment of the host country
1
All definitions on this paragraph are based on the WDI published by the WB.
16
might highly influence the relationship. Inflation represents a general increase in the
consumer prices index. Most studies have found that the relationship between inflation and
FDI is negative but according to Campos and Kinoshita (2003) it can also be positive when
associated with growth during a transition period so we might expect to find a positive
relationship for countries that have had a long transition. Unemployment is the percentage of
the labour force that is available and looking for work to the total labour force. Its relationship
with FDI is also ambiguous. On most cases, unemployment has a positive relationship with
FDI because it signals investors that labour is available (Barros and Cabral 2000) but if a
certain high level of unemployment is reached, it can reflect a poor economic environment
and as a result discourage investors to enter the country Jones and Wren (2010).
3.1 The Regression Model
The multiple regression model will have the following linear form:
(1) Ŷ= bo+b1x1+ b2x2+b3x3+b4x4+b5x5-b6x6+b7x7+b8x8±b9x9-b10x10+b11x11+b12x12±b13x13+b14x14±b15x15
Where: Ŷ = FDI, b0= constant, b1-b15 the coefficients of the variables.
x1= Market size; x2= Human capital; x3=Economic freedom; x4=Political freedom
x5=Openness to trade; x6= Tax rate; x7= GDP per capita; x8=R&D; x9=Government
spending; x10=Real interest rate; x11=Accessibility to credit; x12= Infrastructure;
x13=Inflation; x15=Unemployment.
To be noted that among all the determinants GDP growth, political freedom, real interest rate
and inflation are the only ones that can take negative values. As a result, we might expect
their coefficients signs to be different from what it has been shown in the above regression
model (1) as long as the overall value of bnxn coincides with the expected sign in the model
(i.e. bnxn is positive when the coefficient in the model is positive and it is negative when the
coefficient in the model is negative). Also, since FDI can be negative too, we can expect the
same for the constant b0.
3.2 The Sample and the Time Interval
This study is investigating Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Czech
Republic, Macedonia, Hungary, Romania, Poland, Slovak Republic and Slovenia from 1998
to 2008. The time interval has been chosen according to the data availability. Prior to 1989
all of the countries in our sample were centrally planned economies and there were barely
any statistics regarding FDI. Before 1995, FDI figures were almost non existing and very
volatile for this region (Bevan and Estrin 2004). Data availability for the 1995 – 1998 time-
17
frame are still very limited especially for Albania, B&H and Macedonia. Studies that have
covered this period had to exclude at least these three countries. Nevertheless, the
adopted11-year period with a sample of 11 countries still allows reaching significant
conclusions. Other studies1 have managed to reach robust results working with even shorter
periods and smaller samples.
The reason why EEC offer a useful study context to test FDI determinants relies on the fact
that although these countries have a common starting point, i.e. the time when the current
economic systems was adopted, they have significant differences in economic and
institutional development as well as in size (World Bank 2002). Coming from a communist
background, all the countries under investigation have transited to market economy in the
early 90`s facing similar challenges most of which unknown before. Yet, some were more
successful than others such offering researches the opportunity to compare their individual
features that lead to these differences and take important lessons from them for the future.
3.3 Exclusions and Missing Data
The study attempted to include all the countries of the region in the sample. Unfortunately,
this was not possible. Montenegro and Kosovo declared their independence respectively in
2006 and 2008 from Serbia. Having all been part of State Union of Serbia and Montenegro
since 1992, the data used to be collected for all three entities as one country. Since the
separation, each of them has collected and published its own data thus making it impossible
to include them in the study since the period of the status quo would be too short and as
such insignificant. As a result, Kosovo, Montenegro and Serbia were excluded from this
research. The data for our remaining 11 countries was not always available. Albania does
not record the data for R&D so was excluded when calculating this particular variable. Also,
data on human capital for B&H could not be used for correlation tests since it was available
for two years only. The data on human capital are available only from 1999 and for tax rate
only from 2005 for all countries. For Croatia and B&H, it was not possible to carry out a
correlation test between the tax rate and any other variable since the tax rate has been
constant from 2005 to 2008. Data on political freedom for 1999 and 2001 were not available
for any country since at the time, the data used to be collected biannually. Details on other
missing data can be found in Appendix I. The correlation between FDI and each of the other
variables was calculated on a pairwise exclusion basis to deal with the missing data.
1
See for example Bruno, Crinó and Falzoni (2004) who based their study on 3 countries in a 9-year time-frame. Asiedu (2002)
focused in the 1996-2003 interval while Bevan and Estrin (2004) collected data from 1994 to 2000.
18
3.4 Multicollinearity
Multicollinearity amongst two predicting variables is to be expected especially when using

small samples and time periods. For example, economic freedom is by definition correlated
with openness to trade, political freedom and government spending. Market size is naturally
correlated with government spending, R&D, GDP per capita and openness to trade since
they all are calculated as a share of GDP. Accessibility to capital is highly affected by the
real interest rate which is in turn affected by inflation etc. We will check whether
multicollinearity has caused any problems in our correlation tests by spotting any “odd”
results in our coefficients in section 4.2.
3.5 Tests
The data will be processed with PASW (former SPSS) Statistics 17TM . The association of
the determinants with FDI will be tested statistically in order to provide a framework that can
explain which factors are more strongly related to FDI in each country. Initial hypotheses
regarding the expected sign of the coefficients of each significant factor have been
constructed based on the literature review. The results will be particularly important for
variables that can be both positively and negatively related to FDI (e.g government
spending) according to their economic and political settings such providing additional
evidence to the overall academic discussion. The collected data were in line with the
original sources from the authors that have suggested that these variables would affect the
FDI such maintaining the same methodology that they have used in their study. For example
the human capital was measured in the same way as in the study of Borensztein, Gregorio
and Lee (1998).
3.6 Procedures
A correlation test was first run amongst FDI and all the other variables for every singly
country in order to observe which variables were most often correlated with FDI. As a result
we were able to build a list of most important variables which would then be used also to
construct the regression models. These models would determine which variables are most
important for every country separately. Although significantly associated with FDI, not all of
these variables were included in the respective regression model simply because there
could be only one or few determinants needed to explain the FDI variance better and adding
an additional determinant would not necessarily improve the model, on the contrary it might
cause problems of multicollinearity (See for example the case of B&H in Appendix II).
Nevertheless, this does not imply that the variables which are not included in the regression
models are not important. The model simply prioritizes their importance according to their
ability to explain the variance of FDI. The countries were afterwards divided into groups
19
according to the correlation results between the GDP growth and the level of FDI aiming to
observe potential differences between the models of the countries where the relationship
was important and those where it was not. This enabled us to determine a pattern of
features where countries that have a strong FDI - GDP growth relationship differentiate from
the other countries under investigation. Countries where the FDI- GDP growth relationship
was not important were further divided into subgroups according to the reasons identified by
this study that eventually lead to this relationship being insignificant. As in most cross-
country studies on growth according to Kormendi and Meguire (1985), the explanatory
variables were entered independently and linearly.
Among other objectives, this study also aimed to calculate the correlation of each
determinant with FDI and build for each country a regression model that considered FDI the
variable which was dependent from one or more determinants collected from the literature
with at least a 90% confidence interval. We did not choose a lower significance level due to
the limited number of variables and the short time period. However, significance has been
noted throughout the results if practitioners are interested in a higher level (i.e. 0.05 or 0.01).
The default method for this analysis is “Enter” but this would mean that we would force all
correlated variables into the equation and most possibly decrease the variance explained by
the model. Instead the “Stepwise” method was used in order to enter into the equation only
those variables which would significantly increase the importance of the model. This means
that an extra variable was added to the model only if it improved it significantly. The “Enter”
method was used only in the case of Slovenia and Czech Rep. where only one variable was
correlated to FDI and as a result there was only one variable to be added in the equation.
The F-test tests our null hypothesis that there is no significant relationship between FDI and
the variable in our model. All the models have the form: Ŷ = b0 + b1x1 + b2x2+...+b15x15. The
coefficients (b1-b15) represent the relative importance of each independent variable. Our
model form implies that b0 equals the level of FDI which would be reached independently
from the level of the variables included in the equation (i.e. if the variables are equal to 0),
while bn shows the degree of change of FDI when xn (the variable included in the regression
model) changes by one. Namely, a change in xn (Δxn) by one unit will have an impact of bn
Δxn on FDI. If a variable (xn) is not included in the final model, it would mean that its
coefficient (bn) is equal to 0.
20
4. Findings, analysis and evaluation
The existing literature offers a number of variables that are believed to affect FDI. In our
study we selected 15 variables which were most often encountered in previous and most
influential studies. The variables taken into consideration for all the countries were GDP
growth, human capital, market size, economic freedom, political freedom, openness to trade,
tax rate, GDP per capita, R&D, government spending, real interest rate, accessibility to
credit, infrastructure, inflation and unemployment.
4.1 Correlation and Regression results
Albania
The correlation was significant between FDI and the following variables: market size,
economic freedom, openness to trade, GDP per capita, accessibility to credit, infrastructure
and unemployment.
The model for Albania

FDI = 7249333.24 + 2.131E7 * accessibility to credit
R2 =0.9031
Bosnia and Herzegovina

economic freedom, openness to trade, GDP per capita, R&D, accessibility to credit,
unemployment, real interest rate# and infrastructure#.
The model for B&H

FDI= -1.69E9 + 1.11E11* R&D
R2 = 0.932
Bulgaria
The correlation was significant between FDI and the following variables: GDP growth,
human capital, market size, economic freedom, openness to trade, GDP per capita,
accessibility to credit and unemployment#.
R2 (the coefficient of determination) shows how much of the variance of FDI is explained by the equation.
#
Determinant was significant at a 0.1 significance level.
21
The model for Bulgaria

FDI= -5.538 + 0.192*openness to trade
R2 = 0.797
Croatia
The correlation was significant between FDI and the following variables: human capital,
market size, GDP per capita, real interest rate, accessibility to credit, unemployment political
freedom# and economic freedom#.
The model for Croatia

FDI = - 7.047E9 + 0.365* market size
R2= 0.682
Czech Republic
The correlation was significant only between FDI and R&D#.
The model for Czech Republic

FDI= -6.145E9 + 1.011E10*R&D
R2= 0.285
Hungary
No variables were significantly correlated to FDI and as a result no regression model could
be built for the country. Hungary is the only country in our sample where the variance of FDI
could not be explained by any of the 11 variables.
Macedonia
openness to trade, GDP per capita, real interest rate, accessibility to credit and inflation.
The model for Macedonia

FDI = 1.370E8 + 4.680E7*inflation
R2=0.539
#
22
Poland
The correlation was significant between FDI and the following variables: GDP growth,
market size, openness to trade, GDP per capita, accessibility to credit and unemployment#.
The model for Poland

FDI= 8.275E8 + 1.839E9*GDP growth
R2= 0.592
Romania
The correlation was strong between FDI and the following variables: GDP growth, human
capital, market size, economic freedom, GDP per capita, government spending, accessibility
to credit, infrastructure and inflation.
The model for Romania

FDI= -1.887E10 + 0.527*market size
R2=0.923
Slovak Republic
The correlation was significant between FDI and the following variables: openness to trade,
government spending#, economic freedom# and inflation#.
The model for Slovak Rep.

FDI= -4.976E9 + 9.793E7*openness to trade
R2=0.409
Slovenia
The correlation was significant only between FDI and the tax rate#.
The model for Slovenia

FDI= 1.17E10 - 2.95E8*tax rate
R2= 0.839
We can notice that in all countries, only one determinant has been included in the model. In
no case, would adding a second determinant have improved the regression model
significantly (by at least 0.05). The result comes as a surprise, especially in some of the
countries were a number of variables were correlated to FD, since a total of 15 determinants
#
23
were included in the analysis. As mentioned previously (section 3.4) this may have resulted
from the fact that many determinants are correlated to each other and they have been
excluded from the model due to multicollinearity. Another potential reason is related to our
relatively small sample. Adding extra variables to the model would have increased the
probability that the relationship is signifiicant due to chance. For example, in the case of
B&H, adding two additional variables would have increased the coefficient of determination,
but two of the variables had to be excluded since the model would have become insignificant
had we not done so (See Appendix II). A summary of the correlation results that show which
variables are correlated to FDI for each country can be seen in Table 1a and Table 1b.
ALB B&H BUL CRO CZE HUN MAC POL ROM SVK SLO
+/-
GDP growth .649* .77** .636* +
Human capital .822** .723* -.764* .949** +-
Market size .898** .816** .762** .826** .653* .721* .961** +
Economic .902** .712* .803** .59# -.697* .847** .623#
freedom +-
Political .815** .637# .787* .687*
Freedom +
Openness to .902** .798** .893** .610* .670* .640*
trade +
Tax rate -.916# -
** ** ** * **
GDP per capita .893 .823 .769** .817 .655 .714* .955 +
R&D .966* .533# -.576# -.697* +-
Government .946** -.579#
spending +-
Real interest -.652# -.705* -.603#
rate -
Accessibility to .950** .690* .705* .811** .671* .635* .948**
credit +
Infrastructure .578# .739** +
Inflation .734* -.736** -.589# +-
** * # *
Unemployment -.817 -.772 -.569 -.651 -.577 -
Total 7 9 8 8 1 0 7 10 9 4 1
**Sig. at 0.01 *Sig. at 0.05 #Sig. at 0.1
Table. 1a. Correlation results of the variables significantly correlated to FDI.
Determinant^ Countries where the determinant was

included in the regression model
GDP growth Poland
Market size Croatia; Romania
Openness to trade Bulgaria; Slovak Rep.
Tax rate Slovenia
R&D B&H; Czech Rep.
Accessibility to credit Albania
Inflation Macedonia
^The other determinants were not included in any of the regression models.
Table 1b. Determinants included in the regression models.
Naturally, the variable which was most strongly correlated with FDI was also the one that
best explained the variance of FDI. All models are a good representation of the variance of
FDI (more than 50%) except for Czech Rep. (28.5%) and Slovak Rep. (40.9%).
24
4.2 The coefficients
Table 1. offers a detailed view on the direction of the significant relationships between FDI
and each determinant. There are no surprises in the association of FDI with GDP growth,
market size, openness to trade, accessibility to credit and infrastructure which is positive in
all cases as expected and neither are there any controversies with tax rate, real interest rate
and unemployment which relationship with FDI is negative. We were expecting possible
ambiguous results on government size, political freedom and inflation. While a negative
relationship between FDI and government size is more common, we can notice that
Romania has a positive association between the two variables. The country‟s government is
not among the highest spenders (as a share of the GDP) but it is the one who had increased
the spending more than two times from 1998 to 2008 (see Graph 1). This spending has led
Graph 1: General government final consumption expenditure (% of GDP) 1998-2008. Source: WDI.
to a better infrastructure, better trained human capital, growth in GDP, decreased

unemployment, a more stable inflation etc. (see Appendix I for the complete data set) which
has sent investors signals of a positive economic environment. As mentioned previously by
Ancharaz (2002), this situation creates the conditions for a positive correlation between
government spending and FDI which is also what we have found. The positive relationship
between inflation and FDI for Macedonia is another interesting finding. The country has been
the least free politically in the region (see Graph 2) and although positive steps have been
made since 2004, it still suffers from a very high rate of unemployment, suggesting that its
transition period is not completely over yet. As described by Campos and Kinoshita (2003)
these economic and political settings can lead to a positive relationship between inflation
and FDI, which coincides with our findings.
25
Graph 2. Political stability and absence of violence index 1998-2008. Source: The World Bank Group.
4.2.1 “Wrong” signs
Since according to the theory, the relationship between political freedom and FDI is positive,
we were expecting the coefficient of political freedom to be positive for all countries (if
significant) except for Albania, B&H and Macedonia for which the data is negative. Hence, a
negative coefficient to indicate the positive relationship between political freedom and FDI
was predicted in their case. Surprisingly, the coefficient was positive for both Albania and
Macedonia. The inverse relationship between the economic freedom, R&D and human
capital with FDI in the case of Poland and that of R&D with FDI for Slovak Rep. do also
contradict the theory and come as a surprise result. Since the predictions were based on the
theory review the controversy has to be investigated in the methodology and the
econometric results.
While there is no discussion about the methodology used to measure R&D, the concerns
and critics on the validity of the data on human capital, economic freedom and especially
political freedom prove to be more serious than anticipated. The problem with human capital
and economic freedom arises only once, in the case of Poland which leads to the
assumption that for R&D, human capital and economic freedom the problem results from the
high correlation between the variables and/or other econometrical problems. Since carrying
out a detailed analysis of the quality of institutions in Poland compared to the other EEC and
on the data of Poland in economic freedom in order to test this assumption would go beyond
the ambitions of this study, we will instead analyse the problem statistically in search of an
explanation. On the other hand, the problem with the political freedom indicator has been
noticed in 2 out of the 4 times that the indicator was correlated to FDI. Hence, this study
26
adds evidence to the concerns presented by different authors (See Thomas 2010) on the
validity of the used methodology in calculating this indicator.
From the statistical point of view, the problem might be noticed when dealing with a relatively
small sample (in our case 11 years or even less when there are missing data) if the
independent variable has a large variance and the determinants have a minimal variation
especially when also highly correlated with each other (Kennedy 2005; Campos and
Kinoshita 2003). Table 2 shows that in Poland, human capital, economic freedom, R&D and
GDP growth are highly correlated with each other (as well as with other various
determinants). A closer look at the descriptive statistics of the variables correlated with FDI
in the case of Poland, Albania, Macedonia and Slovak Rep. offers further explanations. We
can see that FDI being a relatively high figure in all four countries has a relatively high
variance while the variance of the determinants under discussion is very small leading to the
“wrong” coefficient sign, which as Kennedy (2005) notes, is indeed an indicator of
multicollinearity.
Economic freedom R&D GDP growth

** *
Human capital Pearson Correlation .844 .735 -.722**
Sig. (2-tailed) .004 .024 .028

N
9 9 9
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).
Table 2. Results of correlation tests between human capital with economic freedom, R&D and GDP growth in Poland.
In Table 3 we can see how small is the variance of the three variables that have “wrong”
coefficients. It is interesting how a small sample of 9 valid cases for human capital (two
cases have been excluded due to data unavailability) has lead to a smaller variance. Their
correlation to GDP growth, which also has a small variance, explains the surprising result.
Note that political freedom has a very small variance too but the fact that it is not correlated
with GDP growth has “protected” it by being affected from multicollinearity in Poland but that
is not the case for Albania and Macedonia. Another reason that may have caused this issue
with political freedom is again linked with the methodology used. The data range is (-2.5:
2.5), too small compared with the other determinants and implying a small variance of the
indicator.
27
N Std. deviation Variance
FDI 11 4.154E9 1.725E19
GDP growth 11 1.7388580333E0 3.024
Human capital 9 .223763281 .050
Market size 11 2.5930241E10 6.724E20
Economic freedom 11 1.9305 3.727
Political freedom 9 .30494502706 .093
Openness to trade 11 6.427150259 41.308
GDP per capita 11 697.8691521 487021.353
R&D 11 .05419925758 .003
Accessibility to credit 11 7.713724738 59.502
Unemployment 11 4.44524 19.760

Table 3. Standard deviation and variance of FDI and variables significantly correlated to FDI in Poland
N Std. deviation Variance
FDI 10 1.3393166E9 1.794E18
Economic freedom 11 6.2176143 38.659
R& D 11 .1812070 .033
Government spending 11 1.500513746 2.252
Openness to trade 11 8.7471856 76.513
Inflation 11 3.1519163658E0 9.935
Table 4. Standard deviation and variance of FDI and variables significantly correlated to FDI in Slovak Rep.
The same pattern can be noticed in the case of Slovak Rep. The variance of R&D in Slovak
Rep. is much smaller than that of any of the other variables that are correlated with FDI
(Table 4). As Table 5. shows, the same applies in the case of Slovak Rep. R&D is highly
correlated with all the variables that are correlated with FDI.
Economic freedom Government spending Openness to trade Inflation
R& D Pearson Correlation -.836** .693* -.913** .658*
Sig. (2-tailed) .001 .018 .000 .028
N 11 11 11 11
Table 5. Results of correlation tests between variables significantly correlated to R&D in Slovak Rep.
28
Political freedom in Albania and Macedonia has also a very small variance (Table 6).
Missing data for 1999 and 2001 has increased the chances of multicollinearity and the
results in both countries have been affected. This had led to a “wrong sign” for this indicator.
For the above reasons, since these correlations are not genuine but occur due to their
association with other dependent variables, they will be not considered as significantly
correlated with FDI in our analysis. Our final correlation matrix will be as shown in Table 7.
Table 6. Standard deviation and variance of FDI and variables significantly correlated to FDI.
a.Albania b. Macedonia
N Std. Variance N Std. Variance

deviation deviation
FDI 11 249812059.9 6.241E16 FDI 11 175523719.8 3.08086E16
Market size 11 800911154.6 6.41459E17 Market size 11 368859150.9 1.36057E17
Economic 11 3.079433242 9.482909091 Political 9 0.304945027 0.09299147

freedom freedom
Political 9 0.298306567 0.088986808 Openness 11 5.407232676 29.23816521

freedom to trade
Openness to 11 5.440651211 29.6006856 GDP per 11 170.3464452 29017.91138

trade capita
GDP per capita 11 246.3238948 60675.46116 Real 11 5.812624718 33.78660612

interest rate
Accessibility to 11 11.14056133 124.1121068 Accessibility 11 8.909657377 79.38199457

credit to credit
Unemployment 11 1.793523703 3.216727273 Inflation 11 2.753952449 7.58425409
29
Table 7. Correlation coefficients and significance (corrected).
ALB B&H BUL CRO CZE HUN MAC POL ROM SVK SLO Sign Total
GDP growth .649* .77** .636* + 3
* **
Human capital .822** .723* .949 + 3
** ** ** * **
Market size .898 .816 .762** .826** .653 .721* .961 + 7
** * ~ ** #
Economic freedom .902 .712 .803** .590 .847 .623 + 6
#
Political freedom .637 .687* + 2
** * *
Openness to trade .902 .798** .893** .610 .670* .640 + 6
#
Tax rate -.916 - 1
** ** ** * **
GDP per capita .893 .823 .769** .817** .655 .714* .955 + 7
* #
R&D .966 .534 + 2
** #
Government spending .946 -.579 +- 2
# *
Real interest rate -.652 -.705* -.603* - 3
** * * **
Accessibility to credit .950 .690 .705* .811** .671 .635* .948 + 7
# **
Infrastructure .578 .739 + 2
* ** #
Inflation .734 -.736 -.589 +- 3
** * #
Unemployment -.817 -.772 -.569 -.651* -.577 - 5
Total 6 9 8 8 1 0 6 7 9 4 1
30
4.3 Bulgaria, Romania and Poland
A correlation between FDI and GDP growth was calculated for each country. The test found
that the relationship between the two variables was significant (Sig < 0.1) only in Poland,
Bulgaria and Romania. In all three countries, the relationship was positive and strong
(Pearson correlation > 0.5).
Bulgaria Romania Poland

Pearson correlation 0.649 0.636 0.77
Sig. 0.031* 0.035* 0.006**
Table 8. Correlation results between FDI and GDP growth in Bulgaria Romania and Poland.
Bulgaria, Poland and Romania have in common the following variables: market size, GDP
per capita and accessibility to credit correlated to FDI. Those are also the variables most
often correlated to FDI for the 11 countries in our sample (Table 7).
Poland, Romania Hungary and Czech Rep. used to attract most of the FDI entering the
region in 1998 but as shown clearly in Graph 3. Hungary has fallen behind since 2006 while
Bulgaria has joined the top leading countries.
Graph 3. FDI net inflows (in billion$) 1998-2008. FDI data in billion USD. Source WDI.
The graph shows clearly that the three countries where the correlation between FDI and
GDP growth is strong and significant are amongst those having the highest level of FDI.
Czech Rep. also has a high level of FDI but, differently from the countries where FDI is
strongly correlated with a number of other determinants, in Czech Rep., FDI seem to be
related only with the amount spend for R&D. A similar pattern can be seen in the GDP
growth chart (Graph 4).
31
Graph 4. GDP growth (annual %) 1998-2008. Source WDI.
Romania leads the way (in 2008) with Bulgaria and Poland being in the same range with
Albania, B&H, Macedonia and Slovak Rep. On one hand we have three countries in
transition with problems in infrastructure (Albania), human capital (Albania and Macedonia),
very small market size, low income per capita and limited political freedom (Albania, B&H,
Macedonia) which as a result do not look very attractive to investors. On the other hand we
have Slovak Rep. which also has problems in infrastructure but it mainly lacks very strong
and highly significant1 correlation with a number of variables to FDI.
A very interesting pattern can be noticed by looking at the GDP per capita graph. The three
countries that have a strong GDP growth – FDI correlation are ranked closed to each other,
namely 6th, 7th and 8th. The countries that are in the bottom of the list, Albania, B&H and
Macedonia, also have a relatively large number of determinants correlated to FDI but the
results suggest that a minimum level of GDP per capita is needed in order for FDI to be able
to enhance growth. Our result suggests that the minimum GDP per capita level should be in
the (2177.74USD: 2569.99USD) interval (i.e. more than the GDP per capita of Macedonia
ranked 10th but less than the same figure for Bulgaria ranked 6th). At the top of the list, we
can see that Hungary is ranked 5th but it has only no variable correlated to FDI so it does not
offer a reliable case study to reach a conclusion. However Croatia, ranked 4th, does have
eight significant determinants but GDP growth is not amongst them. This suggests that there
1
The correlations of the determinants of Slovak Rep. are only moderately strong (smaller than 0.65) and only one of them is
significant at the 0.05 level (the other four significant at the 0.1 level).
32
might also be a “maximum” level of GDP per capita for a country to be able to take
advantage of FDI. This level is at the (6221.68USD; 6796.341USD) interval (i.e higher than
GDP per capita for Poland but lower than the same figure for Croatia) according to our
findings. These results seem to suggest that not only there is a minimum level of
development for countries in order to take advantage of FDI as some studies suggest (e.g.
Obwona 2001; Singh and Jun 1995; Blomström, Lipsey and Zejan 1994; Bengoa and
Sanchez-Robles 2003 etc.) but there seems to exist also a “saturation point” meaning that
after reaching a certain level of income per capita, countries cannot keep relying on FDI but
have to start developing their own resources. After all, GDP per capita is one of the variables
most often correlated with FDI (Table 9). The finding coincides in principle with what
Blonigen and Wang (2005) have suggested, i.e. FDI increases growth in developing nations
but not in industrialised ones.
Graph 5. GDP per capita (current US$). 1998-2008. Source WDI.
Our results also support the research of Jones and Wren (2010) who have stated that a very
low unemployment discourages investors because it shows that there is not much human
capital available and as a result there must be a high competition to recruit the needed
labour force. On the other hand, a very high unemployment is not very desirable either since
it signals instability. Graph 6 shows us how all the three countries where the FDI-GDP
33
growth relationship was important, have an unemployment rate in the [5.5-7.5] range for
2008. For B&H and Macedonia, the high unemployment discourages the entering of FDI and
not surprisingly, the low unemployment rate seems to be causing the same effect for Czech
Rep. and Slovenia.
Graph 6. Unemployment, total (% of total labour force) 1998-2008. Source: WDI, INSTAT, EC for Economic and Financial
Affairs, The UN, CIA - The World Factbook.
4.4 Czech Republic, Hungary and Slovenia
Czech Rep. and Hungary have been amongst the most successful countries in attracting
investments. Czech Rep. was at the top of the list in 2003 and 2005 while Hungary was in
the top 3 from 1998 to 2002 (Graph 3). However, none of the variables tested was
correlated with FDI inflows in the case of Hungary and R&D could explain only a minor part
of the FDI variance for Czech Rep (27.5%). Kinoshita (2000) found similar results suggesting
that firms engaged in R&D in Czech Rep. are the only enterprises where there is evidence of
spillovers from FDI. These results alone could explain why the relationship between FDI and
GDP growth is not strong between these two countries but a closer look at the data gives us
further evidence. The GDP growth for both countries fell sharply in 2008 reaching (together
with Croatia) the lowest levels in the region (Graph 4). For Hungary the downfall started
almost simultaneously with the decreasing of its level of FDI inflows which has fallen from
the 3rd place in 1998 to 7th in 2008. The last three years have witnessed a noticeable fall in
its GDP growth with only 0.6% growth in 2008 which inevitably has harmed the confidence of
the investors in its economy. For Czech Rep. the situation seems to be least severe since
34
only 2008 was an unsuccessful year from this point of view (2.46% of GDP growth compared
to 4.71%, the average for the whole region for 2008). Another important factor seems to be
the tax rate policy. Hungary had the highest tax rate in the region for the last two years of the
period studied. It taxed on average 57.5% of the yearly profits in its peak in 2008, more than
30% higher than the rate in Poland, the country which attracts more FDI in EEC. Next
highest in 2008 is Czech Rep. which taxes 48.6% of the profit of business, still more than
10% compared to Poland for the same year. Since Poland, Hungary and Czech Rep. have
similar levels in most of the other indicators, we can assume that most investors have
diverted their attention to Poland moving away from Hungary and Czech Rep. These results
confirm the findings of Feldstein (1994) and Morisset and Pirnia (2000) which suggested that
when other variables are not significantly different, a lower tax rate becomes an important
incentive for investors. Czech Rep. and Slovenia have the lowest rate of unemployment in
the region. As mentioned before, based on the evidence and on what Jones and Wren
(2010) have found, this fact is not attractive to investors since they prefer a higher (but not
too much) rate of unemployment in order to avoid competition on human capital as much as
possible. Slovenia`s indicators are all very positive. It is the country with the higher income
per capita in our sample but is the least attractive when it comes to foreign investments.
From 2005 to 2008 the country has lost more investments than it has attracted (FDI is
negative: Graph 3). This confirms what Moosa (2002) has previously stated, i.e. that
investors are not very willing to invest in developed countries where the markets are already
very competitive preferring instead middle income countries where they can benefit from
successfully filling existing gaps in efficiency.
4.6 Slovak Rep. and Croatia
Slovak Rep. and Croatia are the two countries where although FDI were correlated with a
number of determinants, there was found no empirical evidence to suggest that they were
associated with GDP growth. As mentioned previously, their high income per capita seems
to be one of the causes why FDI and GDP growth are not significantly correlated. After
reaching a certain level of income, the countries appear to lose their dependency on
investments from abroad and their economy relies more on the performance of the internal
actors. But these two countries have their own challenges to face. Croatia spends around
1% of the GDP in R&D, very high for the region, but on the other hand does not have the
right level of human capital to be able to harness the advantages generated from the
research coinciding with the findings of Balasubramanayam, Salisu and Sapsford (1996). Its
economic freedom index stands on the same low level as that of B&H (2006-2008) and is
without doubt an unwanted drawback for potential investors. Both the human capital and the
35
economic freedom variables are significantly correlated with FDI and hence have an
important impact on the results. Together with Czech Rep and Hungary, Croatia and Slovak
Rep. have been hit by the global recession in 2008 with a noticeable decrease in their GDP
growth trend. Nevertheless, the real problem for Slovak Rep. is its poor infrastructure,
unusual for a country of this income level, but even more importantly the fluctuations in
inflation which is inversely correlated to FDI.
4.5 Albania, Bosnia and Herzegovina, Macedonia
These three countries have the worst figures in most of the variables under consideration
(See Appendix I) but all three of them are showing signs of significant improvement. Albania
has a better-than-average economic freedom, a stable economic growth (6.7% a year on
average from 1998 to 2008) and an increasingly better index of political freedom. However it
still has to deal with a low level of human capital and infrastructure, a high real interest rate,
low accessibility to credit and a very limited openness to trade. These last two variables
deserve particular attention since they are strongly correlated to the level of FDI. As Alfaro et
al. (2004) have found when access to credit is restricted, even if there are useful spillovers
from foreign investors to the domestic economy, local investors find it extremely challenging
to take advantage of them unless access to funds is granted. Moore (2010) has stressed
that this takes additional importance in the early stages of development. Macedonia has to
address its deficiencies in human capital and R&D but especially in unemployment and
political freedom. Its low-tax policy (rates were recently decreased below 20% and are more
than 75% lower than the rates in Croatia, the second lowest in the region for 2008) does not
seem to have achieved particular results at least not in the short term. The data suggests
that policy makers in Macedonia should work harder to increase political freedom and
decrease unemployment as a number one priority without forgetting to address the difficulty
of investors to access credit and control the highly fluctuating inflation rate. B&H is perhaps
the country that has to deal with more challenges than any other in our sample. Except for
perhaps it`s low real interest rate, high accessibility to credit and good infrastructure, all
other indicators are in very low levels. Since government spending and political freedom are
not related to FDI, the most problematic variables seem to be the almost non existing level of
R&D, the high unemployment and the very low index in economic freedom.
36
5. Conclusions, implications for practice and policy and recommendations
5.1 Conclusions
The study identified the countries where the relationship was important, the variables that
were most often correlated with FDI and those that best explained the variance of FDI. A
robust linear regression model for FDI was successfully built for 8 countries. In addition
patterns of different country settings that explained the results were also identified.
The research found that among the countries of our sample there is a strong, significant and
positive association between FDI and GDP growth in Bulgaria, Romania and Poland. Market
size, GDP per capita, and accessibility to credit were the three variables which were
correlated more often with FDI (in 7 out of the 11 countries tested). Market size, openness
to trade and R&D were each included twice in the regression models, being the
determinants which best explained the variance of FDI. The main objective, identifying
patterns between countries where the relationship between GDP growth and FDI was strong
and significant and countries where it was not, was fully achieved as the study succeeded in
offering an explanation which was supported by both the data and previous economic
theories.
Evidence shows that the countries that have a greater number of determinants correlated
significantly to FDI and that have in addition, a high level of FDI inflows seem to be able to
benefit from a stronger relationship between FDI and GDP growth. This finding suggests that
investors seem to feel more comfortable investing in countries where other investors seem
to be also interested. The phenomenon, known as “the beauty contest concept1” or the “herd
behaviour” was first described by Keynes (1936) to explain market trends. It is a situation
where investors do not make decisions based on what they personally perceive to be the
best investment option but instead invest where they expect other investors to invest.
However, the findings from our sample provide evidence that investors do not follow the
trend blindly but instead also expect markets to provide a positive economic and political
environment. The research found that countries that have more variables correlated with FDI
tend to have better chances in taking advantages of FDI by translating them into GDP
growth. However, this does not apply to low or high income countries. Low income countries
tend to also have more variables correlated to FDI but due to lower figures in economic
and/or political indicators, FDI fail in enhancing growth in their case. High income countries
1
Keynes (1936) created a fictional situation where there would be a contest where entrants would choose “the most beautiful”
faces from a magazine. Whoever selected the most popular faces would win. Keynes suggested that to maximise its chances
of winning instead of naively choosing what he/she believed to be the most beautiful faces, a contestant should choose what
he/she predicted would be the majority`s perception of what beauty is.
37
on the other hand seem to not be able to harness significant benefits from FDI once they
have reached a certain level of development. Middle income countries seem to be more
advantaged in this matter. In our sample this category is estimated to start at the
(2177.73USD: 2569.99USD) GDP per capita interval and to end within the (6221.68USD;
6796.34USD) GDP per capita interval. In our Eastern Europe-based study, Albania, B&H
and Macedonia did not have a GDP growth correlated to FDI possibly due to their low
income figures and economic as well as political still ongoing challenges. Bulgaria, Romania
and Poland had over one third of the variables tested correlated with FDI and a higher
income per capita (over 2500USD in 2008). The higher income countries did not have many
determinants associated with FDI inflows except for maybe Croatia (7 out of 15) and
Slovakia (4 out of 15) which seemed to be “too rich” to be benefiting significantly from FDI.
Last but not least, investors seem to pay particular attention to the existing level of FDI in the
host countries. Bulgaria, Romania and Poland were also amongst the countries that had the
highest level of FDI.
In terms of projection, we would expect Croatia, if it continued to receive an increasing

amount of FDI inflows at this rate, to start developing a stronger relationship between FDI
and GDP growth and perhaps “expand” the interval set for the GDP per capita range. The
same would be expected from Albania but perhaps in a much later stage when it reaches a
higher income per capita level. Joining NATO in 2009 has been a major step forward for the
country in improving its international image. Accession to the EU would in addition improve
significantly the chances of Albania, B&H and Macedonia to attract more foreign investments
as they would be avoiding the major restraint of having a small market size, improving their
indices of political and economic freedom as well as providing easier access to international
credit markets. At some point in the future when these conditions are fulfilled, they will
perhaps be seen by investors as an efficient platform to base their activity and export to
other countries of the EU.
5.2 Limitations and Implications for Future Research
Even though the present sample of 11 countries and 11 years is relatively small and has
caused econometrical problems such as multicollinearity, it still provides important insights
and evidence where policymakers can base their policies to attract FDI and for
entrepreneurs who can use these results as a checklist before deciding to take on a new
investment abroad. Nevertheless, future research using a longer time series and/or including
other countries of the region which have similar characteristics will have better possibilities in
finding more robust conclusions. A data set with less missing data would also make an
38
important contribution to the significance and the accuracy of all the regression models. The
study confirmed some of the concerns related to the methodology used to calculate the data
on human capital and economic freedom. However, even more serious problems were
experienced with the WGI dataset used to calculate political freedom. The study
recommends that an alternative data set is used for this variable or, if not possible, a critical
approach is adopted.
The study achieved its objective to calculate the correlation coefficients between FDI and
each of the other 15 variables tested. Among the 11 countries only on four occasions (R&D
for Albania; human capital for B&H and tax rate for Croatia and B&H) could the test not be
carried out due to data unavailability. In order to meet the requirements implied by the
objectives that this study had to meet (i.e. time and length), the study concentrated on 15
variables which were considered as more important by the literature in determining the FDI.
However it failed in finding a variable significantly correlated with FDI in Hungary and the
regression models for Czech Rep. and Slovak Rep. were not very robust. In the case of
Hungary none of the variables had any important correlation with FDI so no significant model
could be built. In addition the model for Czech Rep. and Slovak Rep. was significant but
could describe the trend of FDI only in a minor scale (less than 50%). If additional resources
are available, future researchers can try to expand the number of variables correlated with
FDI and as a result perhaps succeed in filling these gaps.
5.3 Recommendations
While Bulgaria, Romania and Poland were the only successful countries in our sample that
have been able to harness FDI in the 1998-2008 period they can still improve their
performance even further. Romania needs to make significant efforts in order to increase the
ability of investors to access credit since some of them may have so far seen it as an
important hurdle. It also needs to review its trade policies since it is the least open country of
our sample in terms of international trade (for 2008). Although policies to control inflation in
Romania seem to have been successful, the situation will need continuous attention since its
level is still relatively high. The same cannot be said about Bulgaria whose fluctuations in
prices have somehow been “excused” by the transition period but needs now to make
dealing with it a priority so that inflation does not become a problem in the future. While
Poland shown clearly by the results and the indicators, is perhaps the best placed country,
an increase in its economic freedom index would strengthen further its position of being the
country which attracts the most FDI in the region.
39
Czech Rep. Hungary and Slovenia are noticeably amongst the most successful economies
in Eastern Europe. Our study has found that once certain economic and political conditions
are fulfilled, investors prefer to expand in the country with the least income per capita, lowest
tax rate, greatest market size and level of FDI. Czech Rep. and Hungary have a relative big
market size but they are perhaps “penalised” by their high tax rate compared to Poland or
Bulgaria. Slovenia on the other hand seems to be less attractive due to its smaller market
size and noticeably higher level of GDP per capita. It is fair to assume that these three
countries have enjoyed a much shorter transition period and having already benefited from
FDI in their early stages, their economies are now less dependent from FDI.
Slovak Rep. and Croatia have had a relatively successful transition period but they are a
step behind the above-mention countries. In order to compete with the highest ranked
countries, Croatia needs to address its low index of economic freedom and has to adjust its
education-R&D ratio by either investing more in human capital or alternatively concentrate
spending in R&D only in its most productive fields where there are possibilities of spillovers.
Slovenia on the other hand, needs to invest more in infrastructure and engage more actively
in policies to put inflation under control.
The problems of Albania, B&H and Macedonia are more serious. Since the level of
spending by the government of Albania is rather low, the country should increase its
investments in infrastructure and human capital. Secondly, its central bank should consider
lowering the interest rate which is the highest of the region or perhaps use other supporting
policies to ease access to credit for investors. Macedonia has to deal with a number of
issues. High unemployment and low political freedom need to become top priorities. Low
accessibility to credit and unstable inflation together with the low level of human capital and
R&D should also be addressed as soon as possible. The situation in B&H would seem to be
the most challenging. Since infrastructure is in good levels, its government can consider
diverting some of the spending to human capital and concentrate more on efforts to improve
the economic and political indices which seem to be very damaging to the image of the
country. Unemployment is another major issue that deserves particular attention.
To summarise, although different businesses may focus on particular variables, on a

national level we can conclude that investors choose to invest in countries where they are
offered an acceptable level of a number of economic and political indicators. Furthermore,
amongst the countries that fulfil these conditions they tend to select the one with the greatest
market size and lowest income per capita so that they can take advantage of gaps in the
40
market and economies of scale. The tax rate and the behaviour of other investors are also
essential in this process.
Assuming that policy makers continuously aim to maximise the national income, they should
also in help investors access credit as easily and cheaply as possible, ease international
trade in order to maximise exports and increase the efficiency of R&D investments.
41
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Appendices
Appendix I: Data Set by Determinant and Definitions of Variables
FDI
Foreign direct investment, net (BoP, current US$) 1998-2008

Foreign direct investment is net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an
enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term
capital, and short-term capital as shown in the balance of payments. This series shows total net, that is, net FDI in the reporting economy from
foreign sources less net FDI by the reporting economy to the rest of the world. Data are in current U.S. dollars.
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Albania 45010000 41200000 143000000 207300000 135000000 178036400.7 327681210.2 258417488.7 314638316.8 647438679.9 843676732.3
Bosnia and Herzegovina 66736468.36 176780594.8 146075610.9 118495219.8 267769569 381784637.4 708285175.3 607373915.4 718392985.2 2087522392 1041976684
Bulgaria 537244256.2 801671162.9 998219916.7 803281565.3 876321850.2 2070285898 2879178250 4004786052 7582756076 11432517580 8472194673
Croatia 842125015.2 1392387341 1104792348 1397845452 552483187.4 1927270597 732256714.9 1551018911 3193722244 4745580940 4604006989
Czech Rep. 3574817996 6222615311 4944400745 5476031435 8285212459 1813296004 3940296137 11628782840 4042698664 8963737281 8966891345
Hungary 3065242420 3060155003 2181836566 3579630098 2730682166 516181669.3 3405012378 5396156974 1120336541 4658704613 1667089846
Macedonia 150471594.6 88107550 215675542 446263168 105470966 117464189 321867202 94236004.92 423969779.6 320744089.9 612032086.2
Poland 6049000000 7239000000 9327000000 5804000000 3901000000 4284000000 11761000000 6951000000 10727000000 17987000000 11747000000
Romania 2040000000 1025000000 1048000000 1174000000 1128000000 1805000000 6447000000 6512280000 10971010000 9647000000 13606000000
Slovak Republic 417252734.17 730400699.62 2030972175.38 4100939036.20 535685661.04 3050538869.05 2266463455.83 3798756919.35 2960033821.42 2979922569.56
Slovenia 221200000 58900000 70500000 370700000 1508300000 -174300000 281500000 -88500000 -255971421.5 -268631005.7 512619024.3
Source: WDI.
50
GDP Growth
GDP growth (annual %) 1998-2008

GDP growth measured as the annual percentage growth rate of GDP at market prices based on constant local currency. Aggregates are based
on constant 2000 U.S. dollars. GDP is the sum of gross value added by all resident producers in the economy plus any product taxes and
minus any subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or
for depletion and degradation of natural resources.
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Albania 12.7 10.1 7.3 7 2.9 5.7 5.9 5.5 5 6 6
Bosnia and Herzegovina 15.6 9.6 5.5 4.4 5.3 4 6.1 5 6.2 6.838 5.42
Bulgaria 4 2.3 5.4 4.1 4.5 5.00717 6.641666 6.245586 6.746421 6.167265 6.013859
Croatia 2.125999 -1.50269 3.032454 3.834939 5.441967 4.957599 4.249673 4.209077 4.739421 5.471415 2.359253
Czech Republic -0.759 1.339505 3.647897 2.456366 1.896838 3.602294 4.484635 6.316355 6.807848 6.131017 2.463661
Hungary 4.857864 4.171342 5.039515 4.1 4.4 4.3 4.7 3.9 4 1.2 0.6
Macedonia 3.378764 4.339212 4.549038 -4.52534 0.85349 2.816485 4.085092 4.102403 3.954069 5.861086 4.987142
Poland 4.981651 4.524249 4.253011 1.205288 1.443448 3.867059 5.344715 3.617051 6.227495 6.785224 4.889497
Romania -4.78906 -1.2 2.100002 5.700002 5.1 5.199998 8.399992 4.172297 7.9 6 9.425802
Slovak Republic 4.357399 0.028742 1.370192 3.484678 4.589554 4.778911 5.030544 6.665366 8.503333 10.57938 6.170468
Slovenia 3.566907 5.36587 4.388756 2.849162 3.973687 2.835231 4.286534 4.34857 5.902689 6.764554 3.540631
Source: WDI
51
Human Capital
Primary to secondary school-life expectancy for male (years) 1999*-2008.
School life expectancy is defined as the total number of years of schooling which a child of a certain age can expect to receive in the future,
assuming that the probability of his or her being enrolled in school at any particular age is equal to the current enrolment ratio for that age. This
indicator shows the overall level of development of an educational system in terms of the number of years of education that a child can expect
to achieve.
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Albania 10.45785 10.2583 10.31073 10.35 10.38345 10.4305694
Bosnia and Herzegovina 11.56749 11.49434
Bulgaria 10.73771 10.79639 10.90846 10.9666 11.29392 11.4827304 11.39343 11.3281 11.36767 11.23096
Croatia 10.4967 10.59509 10.6968 10.80081 10.92785 11.27172 11.33505 11.37082
Czech Republic 11.52353 12.08726 12.53221 12.57404 12.54881 12.435091 12.48873 12.44755 12.40826 12.46961
Hungary 11.50085 11.66414 11.82597 11.96661 12.16773 11.7809312 11.79757 11.76778 11.74193 11.87032
Macedonia 10.77872 10.86656 10.84878 10.74066 10.75354 10.6854312 10.67572 10.57842
Poland 11.9755 12.05759 12.16375 12.26061 12.3356 11.6959265 11.84406 11.82307 11.79639
Romania 10.49481 10.47555 10.51404 10.70233 10.82817 11.1313256 11.19606 11.30803 11.42955 11.50209
Slovak Republic 11.64585 11.74339 11.76317 11.86214 12.01939 12.263628 12.3126 12.29474 12.17885 12.13826
Slovenia 11.83259 11.74131 12.36141 12.58805 12.94616 12.5032586 12.55712 12.56479 12.59797 12.62817
Source UNESCO: Institute for Statistics.
*No data were available for this variable in 1998.
52
Market Size
GDP (constant 2000 US$) 1998-2008

GDP at purchaser's prices is the sum of gross value added by all resident producers in the economy plus any product taxes and minus any
subsidies not included in the value of the products. It is calculated without making deductions for depreciation of fabricated assets or for
depletion and degradation of natural resources. Data are in constant 2000 U.S. dollars. Dollar figures for GDP are converted from domestic
currencies using 2000 official exchange rates. For a few countries where the official exchange rate does not reflect the rate effectively applied
to actual foreign exchange transactions, an alternative conversion factor is used.
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Albania 3120648082 3435833539 3686649387 3944714844 4059111575 4290480934 4543619309 4793518372 5033194290 5335185947 5655297104
Bosnia and Herzegovina 4616097181 5059242511 5337500849 5572350886 5867685483 6102392902 6474638869 6798370813 7219869803 7713564500 8131639696
Bulgaria 11685123847 11953881696 12599391307 13115966351 13706184836 14392476788 15348377074 16306973117 17407110257 18480652845 19592053197
Croatia 21035325723 20719230111 21347531223 22166196073 23372473132 24531186576 25573681727 26650097658 27913157941 29440402527 30134976130
Czech Rep. 54001191849 54724540426 56720835331 58114106567 59216437149 61349587387 64100892591 68149732482 72789262997 77251985335 79155212395
Hungary 43762553933 45588039514 47885455754 49848759439 52042104855 54279915364 56831071386 59047483170 61409382496 62146295086 62519172857
Macedonia 3288135722 3430814903 3586883989 3424565368 3453793697 3551069283 3696133717 3847764010 3999907260 4234345269 4445518087
Poland 157177779331 164288893911 171276118424 173340489224 175842569475 182642504560 192404226787 199363586523 211778943588 226148618304 237206147127
Romania 36731311750 36290534542 37052636395 39164637562 41162034208 43302459253 46939862239 48898332853 52761301149 55926979218 61198545647
Slovak Republic 28304680302 28312815552 28700755482 29700884467 31064022480 32548544315 34185913027 36464529206 39565229409 43750985812 46450626497
Slovenia 18081623890 19051860359 19887999964 20454641387 21267444768 21870425982 22807909254 23799727188 25204551149 26909526641 27862293677
Source: WDI
53
Economic Freedom
Economic freedom index 1998-2008

Ten components of economic freedom are measured assigning a grade in each using a scale from 0 to 100, where 0 means no freedom and
100 represents the maximum freedom. The ten components of economic freedom are: business freedom, trade freedom, fiscal freedom,
government spending, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption, labour freedom.
The ten component scores are then averaged to give an overall economic freedom score for each country.
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Albania 53.9 53.4 53.6 56.6 56.8 56.8 58.5 57.8 60.3 61.4 62.4
Bosnia and Herzegovina 29.4 29.4 45.1 36.6 37.4 40.6 44.7 48.8 55.6 54.4 53.9
Bulgaria 45.7 46.2 47.3 51.9 57.1 57 59.2 62.3 64.1 62.7 63.7
Croatia 51.7 53.1 53.6 50.7 51.1 53.3 53.1 51.9 53.6 53.4 54.1
Czech Republic 68.4 69.7 68.6 70.2 66.5 67.5 67 64.6 66.4 67.4 68.2
Hungary 56.9 59.6 64.4 65.6 64.5 63 62.7 63.5 65 64.8 67.6
Macedonia 58 60.1 56.8 56.1 59.2 60.6 61.1
Poland 59.2 59.6 60 61.8 65 61.8 58.7 59.6 59.3 58.1 60.3
Romania 54.4 50.1 52.1 50 48.7 50.6 50 52.1 58.2 61.2 61.7
Slovak Republic 57.5 54.2 53.8 58.5 59.8 59 64.6 66.8 69.8 69.6 70
Slovenia 60.7 61.3 58.3 61.8 57.8 57.7 59.2 59.6 61.9 59.6 60.2
Source: The WSJ and The Heritage Foundation.
54
Political Freedom
Political stability and absence of violence index 1998-2008.
The WGI index measures the perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional or violent
means, including domestic violence and terrorism. The indicator combines the views of a large number of enterprise, citizen and expert survey
respondents in industrial and developing countries. The data range within the (-2.5: 2.5) interval where higher values represent a more stable
environment. The individual data sources underlying the aggregate indicators are drawn from a diverse variety of survey institutes, think tanks,
non-governmental organizations, and international organizations. A working paper describing the WGI methodology is available at this address:
http://econ.worldbank.org/external/default/main?pagePK=64165259&theSitePK=469372&piPK=64165421&menuPK=64166093&entityID=000158349_20100924120727
[Accessed 08 January 2010]
1998 2000 2002 2003 2004 2005 2006 2007 2008
Albania -0.84194 -0.95855 -0.60928 -0.42873 -0.82319 -0.60123 -0.40784 -0.2223 -0.0635
Bosnia and Herzegovina -0.6155 -0.64398 -0.67468 -0.44565 -0.60055 -0.47588 -0.58163 -0.49995
Bulgaria 0.565803 0.485279 0.498947 0.30848 0.165726 0.240477 0.463179 0.429432 0.430525
Croatia 0.115977 0.321501 0.482494 0.430274 0.507515 0.413307 0.53242 0.604709 0.574009
Czech Republic 0.827281 0.643711 1.002806 0.920736 0.750508 0.869937 1.002787 0.973637 1.030266
Hungary 1.157167 0.830496 1.123998 1.098947 0.867278 0.932611 0.953007 0.748341 0.747624
Macedonia -0.91382 -0.84129 -0.96639 -0.98625 -1.08974 -0.99314 -0.61579 -0.35229 -0.23799
Poland 0.695265 0.484553 0.739216 0.706039 0.281233 0.430492 0.433109 0.674372 0.881676
Romania 0.192782 0.022679 0.446989 0.40207 0.170874 0.223641 0.246364 0.290636 0.262891
Slovak Republic 1.090586 0.550379 0.869611 0.943695 0.59542 0.828752 0.746968 0.949854 1.030896
Slovenia 1.065722 0.92253 1.16299 1.117266 0.98685 0.989378 1.036418 1.047632 1.083631
Source: The World Bank Group.
55
Openness to Trade
Exports of goods and services (% of GDP) 1998-2008

Exports of goods and services represent the value of all goods and other market services provided to the rest of the world. They include the
value of merchandise, freight, insurance, transport, travel, royalties, license fees, and other services, such as communication, construction,
financial, information, business, personal, and government services. They exclude compensation of employees and investment income
(formerly called factor services) and transfer payments.
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Albania 10.7614 17.28705 19.13554 20.51982 20.41931 20.6194 21.54212 22.27307 25.09053 28.41784 31.15115
Bulgaria 47.0654 44.55781 55.70251 55.57065 51.54036 53.26954 56.9849 60.20424 64.54783 63.39498 60.47108
Croatia 35.11377 36.5444 42.03559 43.77752 41.04418 42.92961 43.26327 42.62009 43.3993 42.78849 41.9091
Czech Republic 54.2244 55.45558 63.37428 65.35154 60.22081 61.78114 70.14895 72.20994 76.41713 80.05479 77.09346
Hungary 61.92891 64.32642 72.15652 71.24169 63.09876 60.78051 63.20433 65.97984 77.09578 80.36387 81.44972
Macedonia 41.2065 42.17177 48.63065 42.69268 38.02971 37.87646 41.1227 45.4757 48.13341 53.42853 52.56695
Poland 25.9813 24.16901 27.12436 27.05604 28.63482 33.31383 37.49234 37.08499 40.35506 40.7573 39.76983
Romania 22.62165 28.018 32.69133 33.3941 35.40244 34.69488 35.92703 32.92276 29.55487 30.72413 29.90738
Slovak Republic 59.20509 61.21043 70.50569 72.76835 71.16953 75.90018 74.59914 76.30487 84.42221 86.71862 83.03161
Slovenia 51.43708 47.55332 53.94595 55.47758 55.23588 53.97143 58.00382 62.22053 66.6298 70.1649
Source: WDI
56
Tax Rate
Total tax rate (% of profit) 2005*-2008

Total tax rate is the total amount of taxes payable by businesses (except for labour taxes) after accounting for deductions and exemptions as a
percentage of profit.
2005 2006 2007 2008

Albania 58.2 57.3 46.8 50.5
Bosnia and Herzegovina 44.1 44.1 44.1 44.1
Bulgaria 46 42.5 36.7 34.9
Croatia 32.5 32.5 32.5 32.5
Czech Republic 49.6 49.1 48.6 48.6
Hungary 56.6 55.7 56.2 57.5
Macedonia, FYR 50.4 21.6 21.6 18.4
Poland 40.9 40.9 41 44.1
Romania 57.2 49.8 46.9 48
Slovak Republic 49.7 48.4 48.4 47.4
Slovenia 40 40 39.2 36.7
Source: WDI.
*Data for this variable were available only since 2005.
57
GDP per Capita
GDP per capita (current US$) 1998-2008

GDP per capita is gross domestic product divided by midyear population. GDP is the sum of gross value added by all resident producers in the
economy plus any product taxes and minus any subsidies not included in the value of the products. It is calculated without making deductions
for depreciation of fabricated assets or for depletion and degradation of natural resources. Data are in current U.S. dollars.
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Albania 1014.638 1119.217 1201.82 1285.182 1319.486 1389.973 1466.309 1541.037 1612.298 1703.195 1799.164
Bulgaria 1415.178 1456.37 1563.2 1658.15 1741.795 1839.764 1972.546 2106.844 2260.951 2412.692 2569.991
Croatia 4673.478 4549.677 4823.211 4992.387 5264.071 5525.042 5761.136 5999.572 6286.747 6636.7 6796.341
Czech Republic 5245.431 5321.846 5521.189 5684.087 5802.772 6010.327 6274.549 6657.96 7088.16 7475.401 7593.31
Hungary 4262.627 4453.031 4689.608 4893.093 5122.956 5358.57 5622.86 5853.791 6097.421 6180.157 6228.133
Macedonia, FYR 1648.773 1712.354 1783.088 1696.718 1706.493 1750.631 1818.795 1890.503 1962.795 2075.824 2177.743
Poland 4064.997 4249.803 4454.08 4532.005 4599.553 4780.645 5039.105 5223.667 5552.488 5932.458 6221.677
Romania 1632.285 1615.929 1650.966 1769.593 1887.896 1991.648 2164.635 2260.217 2444.048 2595.596 2844.642
Slovak Republic 5250.692 5247.861 5326.06 5521.739 5774.948 6050.309 6351.367 6768.986 7338.569 8106.06 8591.426
Slovenia 9120.157 9595.498 9998.994 10268.39 10665.72 10958.78 11421.09 11896.89 12559.15 13333.94 13784.23
Source: WDI.
58
Research and Development
Research and development expenditure (% of GDP) 1998-2008

Expenditures for research and development are current and capital expenditures (both public and private) on creative work undertaken
systematically to increase knowledge, including knowledge of humanity, culture, and society, and the use of knowledge for new applications.
R&D covers basic research, applied research, and experimental development.
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Albania*
Bosnia and Herzegovina 0.01854 0.016112 0.028119 0.020652
Bulgaria 0.519427 0.508193 0.569097 0.565143 0.52058 0.46632 0.488649 0.499631 0.499708 0.486343 0.48021
Croatia 0.987265 1.233876 1.074852 1.106875 1.113284 1.202885 0.999227 0.869586
Czech Republic 0.966222 1.075449 1.145264 1.136425 1.20992 1.204695 1.199149 1.25127 1.246393 1.412394 1.544148
Hungary 0.651143 0.723003 0.680256 0.68625 0.778996 0.920786 0.998044 0.928022 0.876209 0.942027 1.001604
Macedonia, FYR 0.377732 0.429599 0.345101 0.440593 0.316351 0.259262 0.225056 0.245976 0.245635 0.208642
Poland 0.653685 0.652174 0.666515 0.688945 0.644099 0.623169 0.559253 0.540612 0.557608 0.566916 0.555823
Romania 0.705429 0.579221 0.490476 0.402362 0.368518 0.393379 0.379195 0.385729 0.386762 0.410993 0.458372
Slovak Republic 0.901199 1.068304 0.77895 0.651514 0.646543 0.63365 0.569779 0.57856 0.513923 0.510016 0.48586
Slovenia 1.311564 1.293912 1.356946 1.390445 1.407554 1.521744 1.493371 1.293225 1.419097 1.461453 1.588648
Source: WDI.
*No data were available for Albania.
59
Government Spending
General government final consumption expenditure (% of GDP)

General government final consumption expenditure includes all government current expenditures for purchases of goods and services
(including compensation of employees). It also includes most expenditure on national defence and security, but excludes government military
expenditures that are part of government capital formation.
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Albania 9.754902 9.214386 8.856542 9.554616 10.19116 10.07897 9.521866 9.346267 8.874412 8.903578 9.360909
Bosnia and Herzegovina 24.50624 24.2946 21.5 20.16281 20.468 21.84985 21.18441
Bulgaria 15.34396 16.54866 17.88596 17.42412 17.99971 18.93088 18.30968 18.7023 16.60946 16.15032 8.695164
Croatia 23.24599 24.38874 22.86873 20.15071 19.5928 19.17955 19.16937 18.83786 18.54104 18.53792 18.56425
Czech Republic 20.02071 21.17554 21.05516 21.11487 22.29698 23.40509 22.08307 22.06731 21.31922 20.31405 20.41841
Hungary 10.46412 10.59952 10.2127 10.28904 10.49243 10.48942 9.993403 9.876665 10.22073 9.695132 9.4815
Macedonia 20.26056 20.5776 18.19916 24.79591 22.38646 20.66914 20.03081 18.83675 18.52056 17.50871 19.00659
Poland 18.24604 18.44999 18.46007 18.88604 18.9304 19.16304 18.53257 19.00242 19.16867 18.8099 19.41133
Romania 7.101667 5.690266 7.208813 6.641454 6.818804 10.11027 9.8075 9.877342 12.92586 13.22798 15.5
Slovak Republic 22.25158 20.1519 20.15678 20.65243 20.29848 20.42925 19.02036 18.33568 18.91078 17.28706 17.39232
Slovenia 18.21484 18.23083 18.78268 19.38645 19.11791 19.02888 18.90114 18.96493 18.75899 17.32679 18.13738
Source: WDI.
60
Real Interest Rate
Real interest rate (%)

Real interest rate is the lending interest rate (rate charged by banks on loans to prime customers) adjusted for inflation as measured by the
GDP deflator.
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Albania 16.40465 17.04441 15.65451 11.62047 10.53103 5.427695 9.283674 10.7306 10.60472 10.30908
Bosnia and Herzegovina 76.28876 14.70099 4.526145 6.741748 9.194199 7.517164 7.329362 1.634439 0.539485 -0.71829
Bulgaria -7.75159 9.426046 4.360877 4.156305 4.639241 6.651556 3.55643 4.725416 0.782552 1.98992 -0.45142
Croatia 7.018743 10.83529 7.214178 5.340117 9.023056 7.415605 7.698964 7.623686 6.307689 5.080532 3.467355
Czech Republic 1.555446 5.677118 5.572971 2.216657 3.796682 4.96652 1.42902 6.084736 4.434622 2.331569 4.338303
Hungary 5.891626 7.301829 -0.27142 3.493004 2.205216 3.640194 7.96392 6.120593 3.976927 3.011445 6.091437
Macedonia 19.37265 17.23811 9.937687 15.19112 14.41757 15.7034 10.95889 8.033393 6.651616 2.398351 2.35137
Poland 12.07576 10.22906 11.98752 14.37998 9.570898 6.882608 3.339393 4.079994 3.942428
Romania 0.060048 12.09486 6.651688 5.790445 9.72025 1.173344 9.189523 6.508238 2.887164 0.279243 3.057
Slovak Republic 15.31763 12.76924 5.0079 5.923978 6.139651 2.994956 3.017726 4.199052 4.592299 6.79947
Slovenia 8.493982 5.459177 9.902657 5.87546 5.080218 4.885579 5.107044 6.099119 5.295064 1.717173 2.536997
Source: WDI.
61
Accessibility to Credit
Domestic credit to private sector (% of GDP)

Domestic credit to private sector refers to financial resources provided to the private sector, such as through loans, purchases of nonequity
securities, and trade credits and other accounts receivable, that establish a claim for repayment. For some countries these claims include credit
to public enterprises.
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Albania 3.70834 3.936623 4.672248 6.020386 6.39855 7.673815 9.358096 14.86619 21.83354 29.59591 35.63781
Bulgaria 10.55621 12.08244 12.56873 14.95452 19.7434 27.39856 36.31129 43.60778 47.11214 66.84735 74.49185
Croatia 35.27449 32.29179 32.29685 36.5838 43.7071 46.14585 48.85331 53.02533 60.15222 63.09252 64.94068
Czech Republic 61.34576 55.7277 48.9832 40.6907 30.80337 31.79383 32.61473 36.95563 41.01386 47.94587 52.76579
Hungary 24.20046 26.05663 31.44057 32.9864 34.93015 42.31027 45.87001 51.30807 55.36935 61.36879 69.60284
Macedonia 17.71012 20.8655 17.83366 17.59786 17.66776 18.7577 22.10683 25.10894 30.16998 36.7931 43.82641
Poland 22.55901 25.4985 26.57619 27.27141 27.43473 28.07004 28.14845 28.93749 33.29147 39.44323 49.74247
Romania 11.55177 8.068181 7.169175 8.699523 10.14291 13.72831 15.6741 19.96513 25.87427 35.06555 38.47184
Slovak Republic 53.49485 54.47047 51.10236 37.25762 39.29532 31.86833 30.44744 35.14333 38.65092 42.35223 44.73555
Slovenia 30.30004 33.55368 35.91487 38.13598 38.76549 41.41577 48.05938 56.28711 65.87181
Source: WDI
62
Infrastructure
Telephone lines (per 100 people)

Telephone lines are fixed telephone lines that connect a subscriber's terminal equipment to the public switched telephone network and that
have a port on a telephone exchange. Integrated services digital network channels and fixed wireless subscribers are included.
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Albania 3.761021 4.573244 4.97748 6.434388 7.15149 8.261154 8.860459 8.968523 8.200526 9.577144 10.93093
Bulgaria 33.40184 34.51992 35.75417 36.4981 36.49512 36.01575 35.04434 32.17083 31.16532 30.03167 28.72438
Croatia 34.61384 35.87097 38.88701 40.11261 41.1036 42.1464 42.52309 42.37956 41.23986 41.62985 42.35634
Czech Republic 36.34316 37.01388 37.68654 37.76255 36.01688 35.52626 33.55189 31.43214 28.11905 23.25079 21.7208
Hungary 33.34122 36.39334 37.19777 36.73251 36.11912 35.56833 35.26218 33.86238 33.36558 32.32604 30.82226
Macedonia 22.02169 23.50719 25.21935 26.6806 27.67046 25.88182 26.42472 26.21986 24.08832 22.72916 22.39321
Poland 22.79085 26.32106 28.46423 29.80542 31.02577 32.17534 32.87781 31.01298 30.08713 27.51945 25.47116
Romania 15.99342 16.65331 17.37382 18.59751 19.33317 19.92254 20.23529 20.25945 19.44629 19.75693 23.40842
Slovak Republic 28.55465 30.68294 31.50981 28.93257 26.07732 24.06612 23.23134 22.22098 21.65278 21.32102 20.30484
Slovenia 36.47755 38.15477 39.48713 40.25487 40.51088 40.70362 40.61202 40.80805 41.7298 42.47256 49.95592
Source: WDI.
63
Inflation
Inflation, consumer prices (annual %)
Inflation as measured by the consumer price index reflects the annual percentage change in the cost to the average consumer of acquiring a
basket of goods and services that may be fixed or changed at specified intervals, such as yearly. The Laspeyers formula* is generally used.
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Albania 20.64286 0.389438 0.05 3.107588 7.770526 0.484003 2.280019 2.366582 2.370728 2.932683 3.359242
Bosnia and Herzegovina 6.125 1.515508 7.410272
Bulgaria 18.67226 2.573009 10.31626 7.360951 5.810131 2.157107 6.346133 5.038844 7.261613 8.402475 12.3489
Croatia 6.396687 4.014374 4.629355 3.764151 1.672879 1.770545 2.029699 3.341371 3.208333 2.874445 6.067028
Czech Republic 10.62659 2.143131 3.904084 4.702149 1.79088 0.101502 2.832421 1.847226 2.536629 2.914516 6.355129
Hungary 14.22709 10 9.798585 9.221616 5.295208 4.606503 6.779975 3.550397 3.878719 7.934519 6.066146
Macedonia 0.5442 -1.27929 6.607423 5.198885 2.314598 1.104111 0.926819 0.163762 3.269964 3.613217 7.218528
Poland 11.72515 7.275 10.05982 5.491248 1.900174 0.787919 3.576547 2.107051 1.114944 2.38806 4.349378
Romania 59.09658 45.80378 45.66659 34.46777 22.53721 15.27397 11.87687 8.989057 6.584588 4.835779 7.848325
Slovak Republic 6.698272 10.57045 12.03578 7.329631 3.323311 8.554143 7.548501 2.709085 4.483331 2.756724 4.59818
Slovenia 7.913347 6.149454 8.878804 8.422485 7.470088 5.578802 3.589027 2.477454 2.462562 3.611165 5.651846
Source: WDI.
* The Laspeyres formula is the price index counterpart to the compensating variation which, in welfare analysis, corresponds to “willingness to pay.” Generally, the Laspeyres
formula is as follows:
n n n
L(pr,pc,xr) = Σ(pc /pr ) . sr ,
n n n
where pr is the reference period price of good n, pc is the comparison period price of good n, and sr is the share of total expenditures spent on good n in the reference
period, and there are goods n=1, . . . N in the market basket. In terms of economic theory, this index is an upper bound on the “true” cost-of-living index (Kokoski 2010: 3).
64
Unemployment
Unemployment, total (% of total labour force)

Unemployment refers to the share of the labour force that is without work but available for and seeking employment. Definitions of labour force
and unemployment differ by country.
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Albania* 17.7 18.4 16.8 16.4 15.8 15.0 14.4 14.1 13.8 13.5 13.0
Bosnia and Herzegovina 40.90** 42.00** 43.10** 44.70** 44.20** 29.00*** 45.50****
Bulgaria 12.1999998 14.1000004 17.1000004 19.3999996 17.6000004 13.6999998 12 10.10000038 8.899999619 6.900000095 5.699999809
Croatia 11 13.5 16.1000004 20.5 15.1000004 13.8999996 13.69999981 12.60000038 11.10000038 9.600000381 8.399999619
Czech Rep. 6.5 8.69999981 8.80000019 8.10000038 7.30000019 7.80000019 8.300000191 7.900000095 7.099999905 5.300000191 4.400000095
Hungary 8.89999962 6.9000001 6.5999999 5.69999981 5.5999999 5.80000019 5.800000191 7.199999809 7.5 7.400000095 7.800000191
Macedonia 34.5 32.4000015 32.2000008 30.5 31.8999996 36.7000008 37.20000076 37.29999924 36 34.90000153 33.79999924
Poland 10.6999998 12.5 16.1000004 18.2000008 19.8999996 19.6000004 19 17.70000076 13.80000019 9.600000381 7.099999905
Romania 6.30000019 6.80000019 7.0999999 6.5999999 8.39999962 7 8 7.099999905 7.199999809 6.400000095 5.800000191
Slovak Republic 12.6000004 16.3999996 18.7999992 19.2999992 18.6000004 17.5 18.10000038 16.20000076 13.30000019 11 9.5
Slovenia 7.5999999 7.4000001 7.19999981 5.69999981 5.9000001 6.5999999 6.099999905 5.699999809 5.699999809 4.599999905 4.400000095
Source WDI
*Source INSTAT
** Source: European Commission - Economic and Financial Affairs
***Source: The UN
**** Source: CIA- The World Factbook.
65
Appendix II: Correlation and Regression Results by Country

Albania
a. Correlation results
Real
GDP Human Market Economic Political Openness Tax GDP per Government interest Accessibility
FDI growth capital size freedom freedom to trade rate capita R&D spending rate to credit Infrastructure Inflation Unemployment
FDI Pearson Corr. 1 -.364 .217 .898** .902** .815** .902** -.841 .893** .a -.329 -.432 .950** .837** -.239 -.817**
Sig. (2-tailed) .271 .725 .000 .000 .007 .000 .159 .000 . .323 .212 .000 .001 .479 .002
N 11 11 5 11 11 9 11 4 11 0 11 10 11 11 11 11
GDP growth Pearson Corr. -.364 1 .008 -.630* -.577 -.383 -.657* -.839 -.644* .a -.103 .563 -.358 -.696* .528 .680*
Sig. (2-tailed) .271 .990 .038 .063 .310 .028 .161 .032 . .764 .090 .280 .017 .095 .021
N 11 11 5 11 11 9 11 4 11 0 11 10 11 11 11 11
Human capital Pearson Corr. .217 .008 1 .129 .514 .469 -.322 .a .117 .a .728 -.927 .368 .277 .664 -.487
Sig. (2-tailed) .725 .990 .836 .376 .531 .597 . .852 . .163 .073 .543 .652 .222 .405
N 5 5 5 5 5 4 5 0 5 0 5 4 5 5 5 5
Market size Pearson Corr. .898** -.630* .129 1 .967** .842** .955** -.784 1.000** .a -.310 -.649* .923** .957** -.408 -.965**
Sig. (2-tailed) .000 .038 .836 .000 .004 .000 .216 .000 . .353 .042 .000 .000 .213 .000
N 11 11 5 11 11 9 11 4 11 0 11 10 11 11 11 11
Economic Pearson Corr. .902** -.577 .514 .967** 1 .869** .908** -.775 .966** .a -.215 -.654* .918** .926** -.239 -.942**
freedom
Sig. (2-tailed) .000 .063 .376 .000 .002 .000 .225 .000 . .526 .040 .000 .000 .480 .000
N 11 11 5 11 11 9 11 4 11 0 11 10 11 11 11 11
Political Pearson Corr. .815** -.383 .469 .842** .869** 1 .823** -.807 .837** .a -.110 -.207 .883** .790* -.278 -.795*
freedom
Sig. (2-tailed) .007 .310 .531 .004 .002 .006 .193 .005 . .778 .623 .002 .011 .468 .010
N 9 9 4 9 9 9 9 4 9 0 9 8 9 9 9 9
Openness to Pearson Corr. .902** -.657* -.322 .955** .908** .823** 1 -.813 .957** .a -.365 -.447 .895** .896** -.550 -.869**
trade
Sig. (2-tailed) .000 .028 .597 .000 .000 .006 .187 .000 . .270 .196 .000 .000 .080 .001
N 11 11 5 11 11 9 11 4 11 0 11 10 11 11 11 11
Tax rate Pearson Corr. -.841 -.839 .a -.784 -.775 -.807 -.813 1 -.784 .a .195 -.490 -.818 -.650 -.794 .724
66
Sig. (2-tailed) .159 .161 . .216 .225 .193 .187 .216 . .805 .510 .182 .350 .206 .276
N 4 4 0 4 4 4 4 4 4 0 4 4 4 4 4 4
GDP per capita Pearson Corr. .893** -.644* .117 1.000** .966** .837** .957** -.784 1 .a -.304 -.655* .916** .960** -.420 -.967**
Sig. (2-tailed) .000 .032 .852 .000 .000 .005 .000 .216 . .363 .040 .000 .000 .198 .000
N 11 11 5 11 11 9 11 4 11 0 11 10 11 11 11 11
R&D Pearson Corr. .a .a .a .a .a .a .a .a .a .a .a .a .a .a .a .a
Sig. (2-tailed) . . . . . . . . . . . . . . .
N 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Government Pearson Corr. -.329 -.103 .728 -.310 -.215 -.110 -.365 .195 -.304 .a 1 -.233 -.418 -.074 .389 .187
spending
Sig. (2-tailed) .323 .764 .163 .353 .526 .778 .270 .805 .363 . .517 .201 .830 .238 .582
N 11 11 5 11 11 9 11 4 11 0 11 10 11 11 11 11
Real interest Pearson Corr. -.432 .563 -.927 -.649* -.654* -.207 -.447 -.490 -.655* .a -.233 1 -.406 -.801** -.259 .770**
rate
Sig. (2-tailed) .212 .090 .073 .042 .040 .623 .196 .510 .040 . .517 .245 .005 .469 .009
N 10 10 4 10 10 8 10 4 10 0 10 10 10 10 10 10
Accessibility to Pearson Corr. .950** -.358 .368 .923** .918** .883** .895** -.818 .916** .a -.418 -.406 1 .809** -.203 -.833**
credit
Sig. (2-tailed) .000 .280 .543 .000 .000 .002 .000 .182 .000 . .201 .245 .003 .549 .001
N 11 11 5 11 11 9 11 4 11 0 11 10 11 11 11 11
Infrastructure Pearson Corr. .837** -.696* .277 .957** .926** .790* .896** -.650 .960** .a -.074 -.801** .809** 1 -.414 -.961**
Sig. (2-tailed) .001 .017 .652 .000 .000 .011 .000 .350 .000 . .830 .005 .003 .205 .000
N 11 11 5 11 11 9 11 4 11 0 11 10 11 11 11 11
Inflation Pearson Corr. -.239 .528 .664 -.408 -.239 -.278 -.550 -.794 -.420 .a .389 -.259 -.203 -.414 1 .324
Sig. (2-tailed) .479 .095 .222 .213 .480 .468 .080 .206 .198 . .238 .469 .549 .205 .331
N 11 11 5 11 11 9 11 4 11 0 11 10 11 11 11 11
Unemployment Pearson Corr. -.817** .680* -.487 -.965** -.942** -.795* -.869** .724 -.967** .a .187 .770** -.833** -.961** .324 1
Sig. (2-tailed) .002 .021 .405 .000 .000 .010 .001 .276 .000 . .582 .009 .001 .000 .331
N 11 11 5 11 11 9 11 4 11 0 11 10 11 11 11 11
a.
Cannot be computed because at least one of the variables is constant or no data are available.
67
a. Regression
a
Variables Entered/Removed
Model Variables Entered Variables Removed Method

1 Accessibility to credit . Stepwise (Criteria: Probability-of-F-to-enter <=
.050, Probability-of-F-to-remove >= .100).
a. Dependent Variable: FDI
b
Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate Durbin-Watson

a
1 .950 .903 .889 83273638.5051549 1.719
a. Predictors: (Constant), Accessibility to credit
b. Dependent Variable: FDI
b
ANOVA
Model Sum of Squares df Mean Square F Sig.
a
1 Regression 563383787643654000.000 1 563383787643654000.000 83.565 .000
Residual 60676865111513200.000 9 6741873901279240.000
Total 624060652755167000.000 10
a. Predictors: (Constant), Accessibility to credit
a
Coefficients
Unstandardized Coefficients Standardized Coefficients 90.0% Confidence Interval for B

Model B Std. Error Beta t Sig. Lower Bound Upper Bound
1 (Constant) 7249333.246 39242182.314 .185 .858 -64686018.660 79184685.152
Accessibility to credit 21305665.230 2330683.163 .950 9.141 .000 17033259.782 25578070.678

68
b
Excluded Variables
Collinearity Statistics
Model Beta In t Sig. Partial Correlation Tolerance
a
1 Market Size .142 .503 .629 .175 .148
a
Economic freedom .186 .685 .513 .235 .156
a
Openness to trade .259 1.127 .293 .370 .199
a
GDP per capita .142 .526 .613 .183 .162
a
Unemployment -.084 -.427 .681 -.149 .306
a. Predictors in the Model: (Constant), Accessibility to credit
69
Bosnia and Herzegovina
a. Correlation
GDP Real
GDP Human Market Economic Political Openness Tax per Government interest Accessibility
FDI Pearson 1 .143 .a .816** .712* .287 .798** .a .823** .966* -.339 -.652 .690* .578 -.906 -.772*
Correlation
Sig. (2- .694 . .004 .021 .490 .006 . .003 .034 .456 .057 .027 .080 .278 .042
tailed)
N 10 10 0 10 10 8 10 4 10 4 7 9 10 10 3 7
GDP growth Pearson .143 1 .a -.144 -.230 .608 .128 .a -.091 .595 -.467 .369 .490 -.662* -.931 -.519
Correlation
Sig. (2- .694 . .692 .523 .109 .725 . .803 .405 .291 .328 .150 .037 .237 .233
tailed)
N 10 10 0 10 10 8 10 4 10 4 7 9 10 10 3 7
Human capital Pearson .a .a .a .a .a .a .a .a .a .a .a .a .a .a .a .a
Correlation
Sig. (2- . . . . . . . . . . . . . . .
tailed)
N 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Market size Pearson .816** -.144 .a 1 .881** .527 .840** .a .998** .485 -.646 -.816** .704* .768** .160 -.182
Correlation
Sig. (2- .004 .692 . .001 .179 .002 . .000 .515 .117 .007 .023 .009 .898 .696
tailed)
N 10 10 0 10 10 8 10 4 10 4 7 9 10 10 3 7
Economic Freedom Pearson .712* -.230 .a .881** 1 .588 .867** .a .874** .158 -.806* -.910** .600 .796** .025 -.147
Correlation
Sig. (2- .021 .523 . .001 .125 .001 . .001 .842 .028 .001 .066 .006 .984 .753
tailed)
N 10 10 0 10 10 8 10 4 10 4 7 9 10 10 3 7
Political Freedom Pearson .287 .608 .a .527 .588 1 .525 .a .529 -.501 -.689 -.446 .469 .402 .910 .263
Correlation
Sig. (2- .490 .109 . .179 .125 .182 . .177 .499 .087 .268 .241 .324 .272 .569
tailed)
N 8 8 0 8 8 8 8 4 8 4 7 8 8 8 3 7
70
Openness to trade Pearson .798** .128 .a .840** .867** .525 1 .a .859** .652 -.763* -.770* .798** .514 -.961 -.280
Correlation
Sig. (2- .006 .725 . .002 .001 .182 . .001 .348 .046 .015 .006 .129 .178 .543
tailed)
N 10 10 0 10 10 8 10 4 10 4 7 9 10 10 3 7
Tax rate Pearson .a .a .a .a .a .a .a .a .a .a .a .a .a .a .a .a
Correlation
Sig. (2- . . . . . . . . . . . . . . .
tailed)
N 4 4 0 4 4 4 4 4 4 4 4 4 4 4 3 4
GDP per capita Pearson .823** -.091 .a .998** .874** .529 .859** .a 1 .483 -.643 -.811** .747* .728* .165 -.181
Correlation
Sig. (2- .003 .803 . .000 .001 .177 .001 . .517 .119 .008 .013 .017 .895 .697
tailed)
N 10 10 0 10 10 8 10 4 10 4 7 9 10 10 3 7
R&D Pearson .966* .595 .a .485 .158 -.501 .652 .a .483 1 .902 -.374 .549 .874 -.829 -.908
Correlation
Sig. (2- .034 .405 . .515 .842 .499 .348 . .517 .098 .626 .451 .126 .377 .092
tailed)
N 4 4 0 4 4 4 4 4 4 4 4 4 4 4 3 4
Government Pearson -.339 -.467 .a -.646 -.806* -.689 -.763* .a -.643 .902 1 .455 -.654 -.554 -.729 -.212
spending Correlation
Sig. (2- .456 .291 . .117 .028 .087 .046 . .119 .098 .305 .111 .197 .480 .648
tailed)
N 7 7 0 7 7 7 7 4 7 4 7 7 7 7 3 7
Real interest rate Pearson -.652 .369 .a -.816** -.910** -.446 -.770* .a - -.374 .455 1 -.485 -.789* -.246 .265
Correlation .811**
Sig. (2- .057 .328 . .007 .001 .268 .015 . .008 .626 .305 .185 .011 .842 .566
tailed)
N 9 9 0 9 9 8 9 4 9 4 7 9 9 9 3 7
Accessibility to Pearson .690* .490 .a .704* .600 .469 .798** .a .747* .549 -.654 -.485 1 .131 .044 -.206
credit Correlation
Sig. (2- .027 .150 . .023 .066 .241 .006 . .013 .451 .111 .185 .719 .972 .658
tailed)
N 10 10 0 10 10 8 10 4 10 4 7 9 10 10 3 7
Infrastructure Pearson .578 -.662* .a .768** .796** .402 .514 .a .728* .874 -.554 -.789* .131 1 -.675 -.466
Correlation
Sig. (2- .080 .037 . .009 .006 .324 .129 . .017 .126 .197 .011 .719 .529 .291
tailed)
N 10 10 0 10 10 8 10 4 10 4 7 9 10 10 3 7
71
Inflation Pearson -.906 -.931 .a .160 .025 .910 -.961 .a .165 -.829 -.729 -.246 .044 -.675 1 .991
Correlation
Sig. (2- .278 .237 . .898 .984 .272 .178 . .895 .377 .480 .842 .972 .529 .088
tailed)
N 3 3 0 3 3 3 3 3 3 3 3 3 3 3 3 3
Unemployment Pearson -.772* -.519 .a -.182 -.147 .263 -.280 .a -.181 -.908 -.212 .265 -.206 -.466 .991 1
Correlation
Sig. (2- .042 .233 . .696 .753 .569 .543 . .697 .092 .648 .566 .658 .291 .088
tailed)
N 7 7 0 7 7 7 7 4 7 4 7 7 7 7 3 7
a. Cannot be computed because at least one of the variables is constant or no data are available.
b. Regression
a

1 R&D . Stepwise (Criteria: Probability-of-F-to-enter
<= .050, Probability-of-F-to-remove >= .100).
2 Economic freedom . Stepwise (Criteria: Probability-of-F-to-enter
3 Real interest rate . Stepwise (Criteria: Probability-of-F-to-enter
d
Model Summary

a
1 .966 .932 .898 190146543.2077790
b
2 1.000 1.000 1.000 .0000000
c
3 1.000 1.000 . . 1.019
a. Predictors: (Constant), R&D
b. Predictors: (Constant), R&D, Economic freedom
c. Predictors: (Constant), R&D, Economic freedom, Real interest rate
d. Dependent Variable: FDI
72
d
ANOVA

1 Regression 995152669707309000.000 1 995152669707309000.000 27.524 .034a
Residual 72311415787735300.000 2 36155707893867700.000
Total 1067464085495040000.000 3
2 Regression 1067464085495040000.000 2 533732042747522000.000 . .b
Residual .000 1 .000
Total 1067464085495040000.000 3
3 Regression 1067464085495040000.000 3 355821361831682000.000 . .c
Residual .000 0 .
Total 1067464085495040000.000 3
b. Predictors: (Constant), R&D, Economic freedom
c. Predictors: (Constant), R&D, Economic freedom, Real Interest Rate
a
Coefficients

1 (Constant) -1691154732.980 451684220.015 -3.744 .065 -3010066142.298 -372243323.663
R&D 111076321603.333 21172155134.992 .966 5.246 .034 49253933904.146 172898709302.520
2 (Constant) -3227073597.200 .000 . . -3227073597.200 -3227073597.200
R&D 100644067991.137 .000 .875 . . 100644067991.137 100644067991.137
Economic freedom 39271965.399 .000 .574 . . 39271965.399 39271965.399
3 (Constant) -9799941020.783 .000 . . -9799941020.783 -9799941020.783
R&D 145932971340.920 .000 1.269 . . 145932971340.920 145932971340.920
Economic freedom 138883379.823 .000 2.030 . . 138883379.823 138883379.823
Real interest rate 206471001.113 .000 1.669 . . 206471001.113 206471001.113
73
d
Excluded Variables
1 Economic freedom .574a . . 1.000 .975
Market size .455a . . 1.000 .765
Openness to trade .293a 1.626 .351 .852 .574
GDP per capita .466a . . 1.000 .767
Real interest rate -.338a . . -1.000 .860
Accessibility to credit .230a 1.094 .471 .738 .699
Infrastructure -1.132a . . -1.000 .235
Unemployment .596a 3.448 .180 .960 .176
2 Market size -1.117b . . . .102
Openness to trade .b . . . -.025
GDP per capita -.889b . . . .114
Real interest rate 1.669b . . . .118
Accessibility to credit -.313b . . . .428
Infrastructure .b . . . -.208
Unemployment .608b . . . .176
3 Market size -3.505c . . . .064
Openness to trade .c . . . -.192
GDP per capita -2.742c . . . .077
Accessibility to credit -2.185c . . . .190
Infrastructure .c . . . -.313
Unemployment 1.885c . . . .125
a. Predictors in the Model: (Constant), R&D
b. Predictors in the Model: (Constant), R&D, Economic freedom
c. Predictors in the Model: (Constant), R&D, Economic Freedom, Real interest rate
74
Bulgaria
a. Correlation
Correlations
GDP Real
FDI Pearson 1 .649* .822** .762** .803** -.571 .893** .550 .769** -.353 -.067 -.217 .705* -.488 .063 -.569
Correlation
Sig. (2- .031 .004 .006 .003 .108 .000 .450 .006 .287 .845 .522 .015 .128 .854 .068
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
GDP growth Pearson .649* 1 .608 .925** .776** -.028 .801** -.822 .918** -.527 -.477 -.209 .939** -.873** .083 -.852**
Correlation
Sig. (2- .031 .062 .000 .005 .943 .003 .178 .000 .096 .138 .538 .000 .000 .808 .001
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Human capital Pearson .822** .608 1 .741* .873** -.709* .698* .689 .751* -.722* -.029 -.504 .708* -.497 .023 -.692*
Correlation
Sig. (2- .004 .062 .014 .001 .049 .025 .311 .012 .018 .937 .138 .022 .144 .950 .027
tailed)
N 10 10 10 10 10 8 10 4 10 10 10 10 10 10 10 10
Market size Pearson .762** .925** .741* 1 .921** -.254 .853** -.982* .999** -.593 -.496 -.134 .988** -.816** -.014 -.823**
Correlation
Sig. (2- .006 .000 .014 .000 .510 .001 .018 .000 .054 .121 .695 .000 .002 .968 .002
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Economic Pearson .803** .776** .873** .921** 1 -.444 .841** -.313 .930** -.618* -.207 -.006 .868** -.599 -.226 -.661*
freedom Correlation
Sig. (2- .003 .005 .001 .000 .231 .001 .687 .000 .043 .542 .986 .001 .052 .503 .027
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Political Pearson -.571 -.028 -.709* -.254 -.444 1 -.279 -.672 -.269 .501 -.348 -.561 -.230 -.103 .637 .143
freedom Correlation
75
Sig. (2- .108 .943 .049 .510 .231 .467 .328 .484 .170 .359 .116 .551 .792 .065 .713
tailed)
N 9 9 8 9 9 9 9 4 9 9 9 9 9 9 9 9
Openness to Pearson .893** .801** .698* .853** .841** -.279 1 -.037 .860** -.237 -.163 -.106 .791** -.597 -.021 -.566
trade Correlation
Sig. (2- .000 .003 .025 .001 .001 .467 .963 .001 .482 .631 .756 .004 .053 .950 .069
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Tax rate Pearson .550 -.822 .689 -.982* -.313 -.672 -.037 1 -.981* .954* .810 .759 -.981* .975* -.915 .994**
Correlation
Sig. (2- .450 .178 .311 .018 .687 .328 .963 .019 .046 .190 .241 .019 .025 .085 .006
tailed)
N 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4
GDP per Pearson .769** .918** .751* .999** .930** -.269 .860** -.981* 1 -.590 -.479 -.120 .984** -.798** -.031 -.807**
capita Correlation
Sig. (2- .006 .000 .012 .000 .000 .484 .001 .019 .056 .136 .725 .000 .003 .929 .003
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
R&D Pearson -.353 -.527 -.722* -.593 -.618* .501 -.237 .954* -.590 1 .225 .006 -.627* .499 .246 .728*
Correlation
Sig. (2- .287 .096 .018 .054 .043 .170 .482 .046 .056 .506 .987 .039 .118 .466 .011
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Government Pearson -.067 -.477 -.029 -.496 -.207 -.348 -.163 .810 -.479 .225 1 .466 -.558 .701* -.532 .572
Sig. (2- .845 .138 .937 .121 .542 .359 .631 .190 .136 .506 .149 .075 .016 .092 .066
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Real interest Pearson -.217 -.209 -.504 -.134 -.006 -.561 -.106 .759 -.120 .006 .466 1 -.172 .429 -.925** .373
rate Correlation
Sig. (2- .522 .538 .138 .695 .986 .116 .756 .241 .725 .987 .149 .613 .188 .000 .259
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Accessibility to Pearson .705* .939** .708* .988** .868** -.230 .791** -.981* .984** -.627* -.558 -.172 1 -.862** .045 -.872**
credit Correlation
Sig. (2- .015 .000 .022 .000 .001 .551 .004 .019 .000 .039 .075 .613 .001 .896 .000
tailed)
76
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Infrastructure Pearson -.488 -.873** -.497 -.816** -.599 -.103 -.597 .975* - .499 .701* .429 -.862** 1 -.339 .941**
Correlation .798**
Sig. (2- .128 .000 .144 .002 .052 .792 .053 .025 .003 .118 .016 .188 .001 .307 .000
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Inflation Pearson .063 .083 .023 -.014 -.226 .637 -.021 -.915 -.031 .246 -.532 -.925** .045 -.339 1 -.218
Correlation
Sig. (2- .854 .808 .950 .968 .503 .065 .950 .085 .929 .466 .092 .000 .896 .307 .520
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Unemployment Pearson -.569 -.852** -.692* -.823** -.661* .143 -.566 .994** - .728* .572 .373 -.872** .941** -.218 1
Correlation .807**
Sig. (2- .068 .001 .027 .002 .027 .713 .069 .006 .003 .011 .066 .259 .000 .000 .520
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
b. Regression
a
1 Openness to trade . Stepwise (Criteria: Probability-of-F-to-enter

b
Model Summary

a
1 .893 .797 .771 .6555350 2.020
a. Predictors: (Constant), Openness to trade
77
b
ANOVA

a
1 Regression 13.471 1 13.471 31.348 .001
Residual 3.438 8 .430
Total 16.909 9
a
Coefficients

1 (Constant) -5.538 1.928 -2.873 .021 -9.122 -1.953
Openness to trade .192 .034 .893 5.599 .001 .129 .256
b
Excluded Variables
a
1 GDP Growth -.185 -.670 .524 -.245 .358
a
Human capital .387 2.057 .079 .614 .512
a
Market size .002 .006 .996 .002 .272
a
a
GDP per capita .005 .016 .988 .006 .261
a
Accessibility to credit -.001 -.004 .997 -.002 .375
a
Unemployment -.094 -.462 .658 -.172 .679
a. Predictors in the Model: (Constant), Openness to trade
78
Croatia
a. Correlation
GDP Real
FDI Pearson 1 .151 .723* .826** .590 .637 .307 .a .817** -.595 -.506 -.705* .811** .297 .187 -.651*
Correlation
Sig. (2- .658 .043 .002 .056 .065 .359 . .002 .120 .112 .015 .002 .405 .581 .030
tailed)
N 11 11 8 11 11 9 11 4 11 8 11 11 11 10 11 11
GDP growth Pearson .151 1 .374 .465 -.144 .574 .719* .a .494 .690 -.787** -.374 .482 .788** -.584 .045
Correlation
Sig. (2- .658 .361 .150 .673 .106 .013 . .123 .058 .004 .258 .134 .007 .059 .896
tailed)
N 11 11 8 11 11 9 11 4 11 8 11 11 11 10 11 11
Human capital Pearson .723* .374 1 .902** .266 .584 .373 .a .893** .035 -.615 -.443 .885** .510 -.014 -.733*
Correlation
Sig. (2- .043 .361 .002 .524 .224 .363 . .003 .948 .105 .272 .003 .197 .973 .039
tailed)
N 8 8 8 8 8 6 8 3 8 6 8 8 8 8 8 8
Market size Pearson .826** .465 .902** 1 .485 .842** .554 .a .999** -.393 -.839** -.643* .993** .727* -.112 -.657*
Correlation
Sig. (2- .002 .150 .002 .130 .004 .077 . .000 .336 .001 .033 .000 .017 .743 .028
tailed)
N 11 11 8 11 11 9 11 4 11 8 11 11 11 10 11 11
Economic freedom Pearson .590 -.144 .266 .485 1 .463 .150 .a .477 -.309 -.113 -.226 .450 .026 .117 -.598
Correlation
Sig. (2- .056 .673 .524 .130 .209 .660 . .138 .457 .741 .505 .165 .943 .732 .052
tailed)
N 11 11 8 11 11 9 11 4 11 8 11 11 11 10 11 11
Political freedom Pearson .637 .574 .584 .842** .463 1 .811** .a .853** -.485 -.891** -.392 .827** .558 -.477 -.299
Correlation
Sig. (2- .065 .106 .224 .004 .209 .008 . .003 .270 .001 .297 .006 .150 .194 .434
tailed)
79
N 9 9 6 9 9 9 9 4 9 7 9 9 9 8 9 9
Openness to trade Pearson .307 .719* .373 .554 .150 .811** 1 .a .582 -.133 -.796** -.463 .512 .787** -.533 .213
Correlation
Sig. (2- .359 .013 .363 .077 .660 .008 . .060 .754 .003 .151 .107 .007 .092 .529
tailed)
N 11 11 8 11 11 9 11 4 11 8 11 11 11 10 11 11
Tax rate Pearson .a .a .a .a .a .a .a .a .a .a .a .a .a .a .a .a
Correlation
Sig. (2- . . . . . . . . . . . . . . .
tailed)
N 4 4 3 4 4 4 4 4 4 4 4 4 4 4 4 4
GDP per capita Pearson .817** .494 .893** .999** .477 .853** .582 .a 1 -.395 -.854** -.656* .991** .749* -.124 -.635*
Correlation
Sig. (2- .002 .123 .003 .000 .138 .003 .060 . .332 .001 .028 .000 .013 .716 .036
tailed)
N 11 11 8 11 11 9 11 4 11 8 11 11 11 10 11 11
R&D Pearson -.595 .690 .035 -.393 -.309 -.485 -.133 .a -.395 1 .122 .861** -.295 -.132 -.744* .205
Correlation
Sig. (2- .120 .058 .948 .336 .457 .270 .754 . .332 .773 .006 .478 .756 .034 .625
tailed)
N 8 8 6 8 8 7 8 4 8 8 8 8 8 8 8 8
Government Pearson -.506 -.787** -.615 -.839** -.113 -.891** -.796** .a - .122 1 .554 -.843** -.945** .460 .245
spending Correlation .854**
Sig. (2- .112 .004 .105 .001 .741 .001 .003 . .001 .773 .077 .001 .000 .154 .467
tailed)
N 11 11 8 11 11 9 11 4 11 8 11 11 11 10 11 11
Real interest rate Pearson -.705* -.374 -.443 -.643* -.226 -.392 -.463 .a -.656* .861** .554 1 -.612* -.567 -.360 .287
Correlation
Sig. (2- .015 .258 .272 .033 .505 .297 .151 . .028 .006 .077 .045 .088 .277 .392
tailed)
N 11 11 8 11 11 9 11 4 11 8 11 11 11 10 11 11
Accessibility to Pearson .811** .482 .885** .993** .450 .827** .512 .a .991** -.295 -.843** -.612* 1 .723* -.128 -.684*
credit Correlation
Sig. (2- .002 .134 .003 .000 .165 .006 .107 . .000 .478 .001 .045 .018 .708 .020
tailed)
N 11 11 8 11 11 9 11 4 11 8 11 11 11 10 11 11
80
Infrastructure Pearson .297 .788** .510 .727* .026 .558 .787** .a .749* -.132 -.945** -.567 .723* 1 -.278 -.342
Correlation
Sig. (2- .405 .007 .197 .017 .943 .150 .007 . .013 .756 .000 .088 .018 .436 .333
tailed)
N 10 10 8 10 10 8 10 4 10 8 10 10 10 10 10 10
Inflation Pearson .187 -.584 -.014 -.112 .117 -.477 -.533 .a -.124 -.744* .460 -.360 -.128 -.278 1 -.297
Correlation
Sig. (2- .581 .059 .973 .743 .732 .194 .092 . .716 .034 .154 .277 .708 .436 .375
tailed)
N 11 11 8 11 11 9 11 4 11 8 11 11 11 10 11 11
Unemployment Pearson -.651* .045 -.733* -.657* -.598 -.299 .213 .a -.635* .205 .245 .287 -.684* -.342 -.297 1
Correlation
Sig. (2- .030 .896 .039 .028 .052 .434 .529 . .036 .625 .467 .392 .020 .333 .375
tailed)
N 11 11 8 11 11 9 11 4 11 8 11 11 11 10 11 11

a. Cannot be computed because at least one of the variables is constant or no data are available.
b. Regression
a

1 Market Size . Stepwise (Criteria: Probability-of-F-to-enter <= .050,
Probability-of-F-to-remove >= .100).
b
Model Summary

a
1 .826 .682 .603 945613411.8276200 1.185
a. Predictors: (Constant), Market Size
81
b
ANOVA

a
1 Regression 7686798081968410000.000 1 7686798081968410000.000 8.596 .043
Residual 3576738898513090000.000 4 894184724628272000.000
Total 11263536980481500000.000 5
a. Predictors: (Constant), Market Size
a
Coefficients

1 (Constant) -7046759214.084 3110953416.490 -2.265 .086 -13678835257.439 -414683170.728
Market size .365 .124 .826 2.932 .043 .100 .630
b
Excluded Variables
a
1 Human capital -.118 -.158 .885 -.091 .187
a
a
Political freedom -.201 -.339 .757 -.192 .292
a
GDP per capita -4.544 -.634 .571 -.344 .002
a
Real interest rate -.296 -.761 .502 -.402 .587
a
Accessibility to credit -.704 -.251 .818 -.144 .013
a
Unemployment -.191 -.458 .678 -.256 .568
a. Predictors in the Model: (Constant), Market Size
82
Czech Republic
a. Correlations
FDI GDP Human Market Economic Political Openness Tax GDP R&D Government Real Accessibili Infrastructure Inflation Unemployment
growth capital size freedom freedom to trade rate per spending interest ty to credit
capita rate
FDI Pearson 1 .265 .071 .465 -.390 .335 .431 .231 .461 .534 -.208 .269 .019 -.471 -.093 -.355
Correlation
Sig. (2- .431 .845 .149 .236 .378 .186 .769 .153 .091 .540 .424 .955 .144 .785 .284
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
GDP growth Pearson .265 1 .360 .647* -.620* .118 .793** .549 .671* .498 .249 .234 -.474 -.488 -.590 -.013
Correlation
Sig. (2- .431 .307 .031 .042 .761 .004 .451 .024 .119 .460 .489 .140 .128 .056 .970
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Human capital Pearson .071 .360 1 .431 -.484 .745* .485 .649 .455 .433 .288 -.412 -.686* -.294 .022 -.387
Correlation
Sig. (2- .845 .307 .213 .156 .034 .156 .351 .187 .212 .420 .236 .028 .410 .951 .269
tailed)
N 10 10 10 10 10 8 10 4 10 10 10 10 10 10 10 10
Market size Pearson .465 .647* .431 1 -.431 .624 .943** -.987* .999** .920** -.186 .012 -.080 -.970** -.124 -.731*
Correlation
Sig. (2- .149 .031 .213 .186 .073 .000 .013 .000 .000 .585 .973 .815 .000 .717 .011
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Economic Pearson -.390 -.620* -.484 -.431 1 -.262 -.425 -.976* -.456 -.300 -.411 -.219 .528 .331 .373 .105
freedom Correlation
Sig. (2- .236 .042 .156 .186 .496 .192 .024 .159 .370 .210 .518 .095 .320 .259 .758
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Political Pearson .335 .118 .745* .624 -.262 1 .406 -.819 .626 .584 -.011 .027 -.108 -.635 -.146 -.699*
freedom Correlation
Sig. (2- .378 .761 .034 .073 .496 .278 .181 .071 .099 .978 .945 .782 .066 .708 .036
tailed)
83
N 9 9 8 9 9 9 9 4 9 9 9 9 9 9 9 9
Openness to Pearson .431 .793** .485 .943** -.425 .406 1 -.914 .949** .841** -.156 -.041 -.193 -.862** -.190 -.536
trade Correlation
Sig. (2- .186 .004 .156 .000 .192 .278 .086 .000 .001 .647 .905 .570 .001 .575 .089
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Tax rate Pearson .231 .549 .649 -.987* -.976* -.819 -.914 1 - -.832 .997** .841 -.942 .982* -.694 .948
Correlation .993**
Sig. (2- .769 .451 .351 .013 .024 .181 .086 .007 .168 .003 .159 .058 .018 .306 .052
tailed)
N 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4
GDP per Pearson .461 .671* .455 .999** -.456 .626 .949** -.993** 1 .915** -.154 .012 -.117 -.961** -.152 -.711*
capita Correlation
Sig. (2- .153 .024 .187 .000 .159 .071 .000 .007 .000 .651 .972 .731 .000 .655 .014
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
R&D Pearson .534 .498 .433 .920** -.300 .584 .841** -.832 .915** 1 -.084 .117 -.145 -.886** -.208 -.698*
Correlation
Sig. (2- .091 .119 .212 .000 .370 .099 .001 .168 .000 .807 .732 .670 .000 .540 .017
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Government Pearson -.208 .249 .288 -.186 -.411 -.011 -.156 .997** -.154 -.084 1 .337 -.854** .356 -.770** .511
Sig. (2- .540 .460 .420 .585 .210 .978 .647 .003 .651 .807 .310 .001 .283 .006 .108
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Real Interest Pearson .269 .234 -.412 .012 -.219 .027 -.041 .841 .012 .117 .337 1 -.050 .043 -.496 .278
Rate Correlation
Sig. (2- .424 .489 .236 .973 .518 .945 .905 .159 .972 .732 .310 .883 .900 .121 .407
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Accessibility to Pearson .019 -.474 -.686* -.080 .528 -.108 -.193 -.942 -.117 -.145 -.854** -.050 1 -.129 .727* -.325
credit Correlation
Sig. (2- .955 .140 .028 .815 .095 .782 .570 .058 .731 .670 .001 .883 .705 .011 .330
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
84
Infrastructure Pearson -.471 -.488 -.294 -.970** .331 -.635 -.862** .982* - - .356 .043 -.129 1 -.041 .839**
Correlation .961** .886**
Sig. (2- .144 .128 .410 .000 .320 .066 .001 .018 .000 .000 .283 .900 .705 .904 .001
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Inflation Pearson -.093 -.590 .022 -.124 .373 -.146 -.190 -.694 -.152 -.208 -.770** -.496 .727* -.041 1 -.409
Correlation
Sig. (2- .785 .056 .951 .717 .259 .708 .575 .306 .655 .540 .006 .121 .011 .904 .212
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Unemployment Pearson -.355 -.013 -.387 -.731* .105 -.699* -.536 .948 -.711* -.698* .511 .278 -.325 .839** -.409 1
Correlation
Sig. (2- .284 .970 .269 .011 .758 .036 .089 .052 .014 .017 .108 .407 .330 .001 .212
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
a. Regression
b
a
1 R&D . Enter
a. All requested variables entered.
b
Model Summary
a
1 .534 .285 .205 2631167091.0587900 2.846
85
b
ANOVA
a
1 Regression 24791913147178000000.000 1 24791913147178000000.000 3.581 .091
Residual 62307362349637100000.000 9 6923040261070790000.000
Total 87099275496815100000.000 10
a
Coefficients
Model Unstandardized Coefficients Standardized Coefficients t Sig. 90.0% Confidence Interval for B
B Std. Error Beta Lower Bound Upper Bound
1 (Constant) -6144656680.968 6555166591.771 -.937 .373 -18161017336.059 5871703974.124
R&D 10114754695.499 5345012957.886 .534 1.892 .091 316742317.183 19912767073.815
86
Hungary
a. Correlation
FDI GDP Human Market Economic Political Openness Tax GDP R&D Government Real Accessibility Infrastructure Inflation Unemployment
growth capital size freedom freedom to trade rate per spending interest to credit
capita rate
FDI Pearson 1 -.097 -.404 .030 -.136 -.237 -.020 -.018 .029 -.005 -.295 .227 -.007 -.052 .150 .094
Correlation
Sig. (2- .777 .247 .931 .690 .540 .954 .982 .933 .989 .378 .502 .984 .879 .661 .783
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
GDP Growth Pearson -.097 1 -.031 -.682* -.542 .656 -.768** -.633 -.685* -.568 .788** -.100 -.808** .771** .218 -.325
Correlation
Sig. (2- .777 .933 .021 .085 .055 .006 .367 .020 .068 .004 .769 .003 .005 .520 .330
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Human capital Pearson -.404 -.031 1 .279 .363 .706 -.247 .894 .279 .362 .042 -.189 .218 -.103 -.614 -.412
Correlation
Sig. (2- .247 .933 .435 .302 .050 .492 .106 .435 .304 .908 .601 .544 .777 .059 .236
tailed)
N 10 10 10 10 10 8 10 4 10 10 10 10 10 10 10 10
Market size Pearson .030 -.682* .279 1 .693* -.626 .616* .183 1.000** .886** -.783** .093 .970** -.662* -.752** .045
Correlation
Sig. (2- .931 .021 .435 .018 .072 .044 .817 .000 .000 .004 .786 .000 .026 .008 .895
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Economic Pearson -.136 -.542 .363 .693* 1 -.657 .684* .640 .693* .471 -.600 -.382 .686* -.195 -.626* -.344
freedom Correlation
Sig. (2- .690 .085 .302 .018 .055 .020 .360 .018 .144 .051 .246 .020 .566 .039 .300
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Political Pearson -.237 .656 .706 -.626 -.657 1 -.795* -.567 -.627 -.512 .887** -.008 -.711* .389 .134 -.094
freedom Correlation
87
Sig. (2- .540 .055 .050 .072 .055 .010 .433 .071 .158 .001 .983 .032 .301 .732 .810
tailed)
N 9 9 8 9 9 9 9 4 9 9 9 9 9 9 9 9
Openness to Pearson -.020 -.768** -.247 .616* .684* -.795* 1 .140 .617* .297 -.719* -.248 .709* -.568 -.151 .328
trade Correlation
Sig. (2- .954 .006 .492 .044 .020 .010 .860 .043 .376 .013 .463 .015 .068 .657 .325
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Tax rate Pearson -.018 -.633 .894 .183 .640 -.567 .140 1 .214 .941 -.861 .735 .662 -.711 .200 .525
Correlation
Sig. (2- .982 .367 .106 .817 .360 .433 .860 .786 .059 .139 .265 .338 .289 .800 .475
tailed)
N 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4
GDP per capita Pearson .029 -.685* .279 1.000** .693* -.627 .617* .214 1 .886** -.785** .094 .971** -.665* -.750** .048
Correlation
Sig. (2- .933 .020 .435 .000 .018 .071 .043 .786 .000 .004 .782 .000 .026 .008 .889
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
R&D Pearson -.005 -.568 .362 .886** .471 -.512 .297 .941 .886** 1 -.695* .360 .862** -.579 -.712* -.062
Correlation
Sig. (2- .989 .068 .304 .000 .144 .158 .376 .059 .000 .018 .276 .001 .062 .014 .856
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Government Pearson -.295 .788** .042 -.783** -.600 .887** -.719* -.861 -.785** -.695* 1 -.139 -.866** .718* .307 -.278
Sig. (2- .378 .004 .908 .004 .051 .001 .013 .139 .004 .018 .683 .001 .013 .358 .408
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Real interest Pearson .227 -.100 -.189 .093 -.382 -.008 -.248 .735 .094 .360 -.139 1 .118 -.333 .016 .249
rate Correlation
Sig. (2- .502 .769 .601 .786 .246 .983 .463 .265 .782 .276 .683 .730 .317 .962 .459
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Accessibility to Pearson -.007 -.808** .218 .970** .686* -.711* .709* .662 .971** .862** -.866** .118 1 -.770** -.629* .186
credit Correlation
Sig. (2- .984 .003 .544 .000 .020 .032 .015 .338 .000 .001 .001 .730 .006 .038 .584
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
88
Infrastructure Pearson -.052 .771** -.103 -.662* -.195 .389 -.568 -.711 -.665* -.579 .718* -.333 -.770** 1 .166 -.705*
Correlation
Sig. (2- .879 .005 .777 .026 .566 .301 .068 .289 .026 .062 .013 .317 .006 .626 .015
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Inflation Pearson .150 .218 -.614 -.752** -.626* .134 -.151 .200 -.750** -.712* .307 .016 -.629* .166 1 .383
Correlation
Sig. (2- .661 .520 .059 .008 .039 .732 .657 .800 .008 .014 .358 .962 .038 .626 .245
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Unemployment Pearson .094 -.325 -.412 .045 -.344 -.094 .328 .525 .048 -.062 -.278 .249 .186 -.705* .383 1
Correlation
Sig. (2- .783 .330 .236 .895 .300 .810 .325 .475 .889 .856 .408 .459 .584 .015 .245
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
b. Regression
No variables were entered into the equation.
89
Macedonia
a. Correlations
capita rate
FDI Pearson 1 -.095 .042 .653* .553 .787* .610* -.878 .655* -.508 -.047 -.603* .671* -.283 .734* -.112
Correlation
Sig. (2- .781 .921 .029 .198 .012 .046 .122 .029 .134 .892 .049 .024 .400 .010 .743
tailed)
N 11 11 8 11 7 9 11 4 11 10 11 11 11 11 11 11
GDP Growth Pearson -.095 1 -.535 .511 .333 .621 .474 -.473 .526 -.376 -.930** -.480 .502 -.556 -.132 .546
Correlation
Sig. (2- .781 .172 .108 .465 .074 .140 .527 .097 .285 .000 .135 .116 .076 .698 .082
tailed)
N 11 11 8 11 7 9 11 4 11 10 11 11 11 11 11 11
Human Capital Pearson .042 -.535 1 -.831* -.216 -.484 -.333 1.000** -.814* .733* .510 .676 -.857** .339 .401 -.650
Correlation
Sig. (2- .921 .172 .011 .727 .331 .421 . .014 .039 .197 .066 .006 .412 .325 .081
tailed)
N 8 8 8 8 5 6 8 2 8 8 8 8 8 8 8 8
Market Size Pearson .653* .511 -.831* 1 .563 .853** .831** -.777 .999** -.785** -.621* -.957** .967** -.398 .475 .328
Correlation
Sig. (2- .029 .108 .011 .189 .003 .002 .223 .000 .007 .042 .000 .000 .225 .140 .325
tailed)
N 11 11 8 11 7 9 11 4 11 10 11 11 11 11 11 11
Economic Pearson .553 .333 -.216 .563 1 .788* .487 -.954* .566 -.142 -.279 -.403 .614 -.758* .761* -.371
Freedom Correlation
Sig. (2- .198 .465 .727 .189 .035 .267 .046 .185 .762 .545 .370 .143 .048 .047 .412
tailed)
N 7 7 5 7 7 7 7 4 7 7 7 7 7 7 7 7
Political Pearson .787* .621 -.484 .853** .788* 1 .857** -.912 .868** -.439 -.577 -.778* .907** -.716* .708* -.248
Freedom Correlation
Sig. (2- .012 .074 .331 .003 .035 .003 .088 .002 .277 .104 .014 .001 .030 .033 .519
tailed)
90
N 9 9 6 9 7 9 9 4 9 8 9 9 9 9 9 9
Openness to Pearson .610* .474 -.333 .831** .487 .857** 1 -.805 .848** -.502 -.667* -.868** .816** -.570 .613* .017
trade Correlation
Sig. (2- .046 .140 .421 .002 .267 .003 .195 .001 .139 .025 .001 .002 .067 .045 .959
tailed)
N 11 11 8 11 7 9 11 4 11 10 11 11 11 11 11 11
Tax Rate Pearson -.878 -.473 1.000** -.777 -.954* -.912 -.805 1 -.775 -.133 .295 .756 -.784 .930 -.844 .849
Correlation
Sig. (2- .122 .527 . .223 .046 .088 .195 .225 .867 .705 .244 .216 .070 .156 .151
tailed)
N 4 4 2 4 4 4 4 4 4 4 4 4 4 4 4 4
GDP per capita Pearson .655* .526 -.814* .999** .566 .868** .848** -.775 1 -.772** -.633* -.954** .972** -.431 .481 .312
Correlation
Sig. (2- .029 .097 .014 .000 .185 .002 .001 .225 .009 .036 .000 .000 .185 .135 .350
tailed)
N 11 11 8 11 7 9 11 4 11 10 11 11 11 11 11 11
R&D Pearson -.508 -.376 .733* -.785** -.142 -.439 -.502 -.133 - 1 .451 .693* -.752* .456 -.010 -.691*
Correlation .772**
Sig. (2- .134 .285 .039 .007 .762 .277 .139 .867 .009 .190 .026 .012 .185 .978 .027
tailed)
N 10 10 8 10 7 8 10 4 10 10 10 10 10 10 10 10
Government Pearson -.047 -.930** .510 -.621* -.279 -.577 -.667* .295 -.633* .451 1 .651* -.560 .527 -.080 -.543
Spending Correlation
Sig. (2- .892 .000 .197 .042 .545 .104 .025 .705 .036 .190 .030 .073 .095 .814 .084
tailed)
N 11 11 8 11 7 9 11 4 11 10 11 11 11 11 11 11
Real Interest Pearson -.603* -.480 .676 -.957** -.403 -.778* -.868** .756 - .693* .651* 1 -.871** .252 -.545 -.279
Rate Correlation .954**
Sig. (2- .049 .135 .066 .000 .370 .014 .001 .244 .000 .026 .030 .000 .455 .083 .406
tailed)
N 11 11 8 11 7 9 11 4 11 10 11 11 11 11 11 11
Accessibility to Pearson .671* .502 -.857** .967** .614 .907** .816** -.784 .972** -.752* -.560 -.871** 1 -.561 .416 .243
credit Correlation
Sig. (2- .024 .116 .006 .000 .143 .001 .002 .216 .000 .012 .073 .000 .073 .203 .472
tailed)
N 11 11 8 11 7 9 11 4 11 10 11 11 11 11 11 11
91
Infrastructure Pearson -.283 -.556 .339 -.398 -.758* -.716* -.570 .930 -.431 .456 .527 .252 -.561 1 -.094 -.059
Correlation
Sig. (2- .400 .076 .412 .225 .048 .030 .067 .070 .185 .185 .095 .455 .073 .784 .863
tailed)
N 11 11 8 11 7 9 11 4 11 10 11 11 11 11 11 11
Inflation Pearson .734* -.132 .401 .475 .761* .708* .613* -.844 .481 -.010 -.080 -.545 .416 -.094 1 -.418
Correlation
Sig. (2- .010 .698 .325 .140 .047 .033 .045 .156 .135 .978 .814 .083 .203 .784 .201
tailed)
N 11 11 8 11 7 9 11 4 11 10 11 11 11 11 11 11
Unemployment Pearson -.112 .546 -.650 .328 -.371 -.248 .017 .849 .312 -.691* -.543 -.279 .243 -.059 -.418 1
Correlation
Sig. (2- .743 .082 .081 .325 .412 .519 .959 .151 .350 .027 .084 .406 .472 .863 .201
tailed)
N 11 11 8 11 7 9 11 4 11 10 11 11 11 11 11 11
b. Regression
a
1 Inflation . Stepwise (Criteria: Probability-of-F-to-enter <= .050,
b
Model Summary
a
1 .734 .539 .488 125582798.4945510 2.390
a. Predictors: (Constant), Inflation
92
b
ANOVA
1 Regression 166146408759039000.000 1 166146408759039000.000 10.535 .010a
Residual 141939353499507000.000 9 15771039277723000.000
Total 308085762258546000.000 10
a. Predictors: (Constant), Inflation
a
Coefficients
1 (Constant) 137003279.058 54293939.828 2.523 .033 37476355.795 236530202.321
Inflation 46804654.315 14420280.872 .734 3.246 .010 20370650.957 73238657.674
b
Excluded Variables
Model Beta In t Sig. Partial Correlation Collinearity Statistics
Tolerance
1 Market size .393a 1.676 .132 .510 .775
Openness to trade .256a .882 .403 .298 .625
GDP per capita .393a 1.665 .134 .507 .769
Real interest rate -.289a -1.082 .311 -.357 .703
Accessibility to credit .441a 2.075 .072 .591 .827
a. Predictors in the Model: (Constant), Inflation
93
Poland
a. Correlations
capita rate
FDI Pearson 1 .770** -.764* .721* -.697* .687* .670* .013 .714* -.576 .054 -.470 .635* -.156 -.127 -.577
Correlation
Sig. (2- .006 .017 .012 .017 .041 .024 .987 .013 .063 .874 .201 .036 .648 .711 .063
tailed)
N 11 11 9 11 11 9 11 4 11 11 11 9 11 11 11 11
GDP growth Pearson .770** 1 -.722* .496 -.840** .534 .569 -.212 .486 -.590 -.088 -.530 .380 -.288 .001 -.615*
Correlation
Sig. (2- .006 .028 .121 .001 .139 .068 .788 .130 .056 .797 .142 .248 .391 .997 .044
tailed)
N 11 11 9 11 11 9 11 4 11 11 11 9 11 11 11 11
Human capital Pearson -.764* -.722* 1 -.618 .844** -.309 -.622 -.898 -.609 .735* .282 .614 -.470 .109 .026 .500
Correlation
Sig. (2- .017 .028 .076 .004 .500 .074 .289 .082 .024 .463 .106 .202 .780 .948 .170
tailed)
N 9 9 9 9 9 7 9 3 9 9 9 8 9 9 9 9
Market size Pearson .721* .496 -.618 1 -.309 .799** .921** .767 1.000** - .702* -.844** .925** .061 -.575 -.461
Correlation .818**
Sig. (2- .012 .121 .076 .356 .010 .000 .233 .000 .002 .016 .004 .000 .858 .064 .154
tailed)
N 11 11 9 11 11 9 11 4 11 11 11 9 11 11 11 11
Economic Pearson -.697* -.840** .844** -.309 1 -.292 -.385 .687 -.298 .460 .305 .325 -.182 .317 -.235 .532
freedom Correlation
Sig. (2- .017 .001 .004 .356 .446 .242 .313 .373 .155 .362 .394 .592 .342 .486 .092
tailed)
N 11 11 9 11 11 9 11 4 11 11 11 9 11 11 11 11
Political freedom Pearson .687* .534 -.309 .799** -.292 1 .551 .639 .792* -.363 .463 .058 .897** -.515 -.082 -.858**
Correlation
Sig. (2- .041 .139 .500 .010 .446 .124 .361 .011 .337 .210 .901 .001 .156 .833 .003
tailed)
N 9 9 7 9 9 9 9 4 9 9 9 7 9 9 9 9
94
Openness to Pearson .670* .569 -.622 .921** -.385 .551 1 .129 .925** - .626* -.911** .722* .281 -.677* -.240
trade Correlation .925**
Sig. (2- .024 .068 .074 .000 .242 .124 .871 .000 .000 .040 .001 .012 .402 .022 .478
tailed)
N 11 11 9 11 11 9 11 4 11 11 11 9 11 11 11 11
Tax rate Pearson .013 -.212 -.898 .767 .687 .639 .129 1 .765 .059 .803 .a .891 -.826 .923 -.724
Correlation
Sig. (2- .987 .788 .289 .233 .313 .361 .871 .235 .941 .197 . .109 .174 .077 .276
tailed)
N 4 4 3 4 4 4 4 4 4 4 4 2 4 4 4 4
GDP per capita Pearson .714* .486 -.609 1.000** -.298 .792* .925** .765 1 - .709* -.840** .921** .078 -.587 -.444
Correlation .819**
Sig. (2- .013 .130 .082 .000 .373 .011 .000 .235 .002 .014 .005 .000 .819 .058 .171
tailed)
N 11 11 9 11 11 9 11 4 11 11 11 9 11 11 11 11
R&D Pearson -.576 -.590 .735* -.818** .460 -.363 -.925** .059 -.819** 1 -.485 .967** -.602* -.226 .592 .242
Correlation
Sig. (2- .063 .056 .024 .002 .155 .337 .000 .941 .002 .130 .000 .050 .504 .055 .474
tailed)
N 11 11 9 11 11 9 11 4 11 11 11 9 11 11 11 11
Government Pearson .054 -.088 .282 .702* .305 .463 .626* .803 .709* -.485 1 -.440 .682* .328 -.758** -.022
Sig. (2- .874 .797 .463 .016 .362 .210 .040 .197 .014 .130 .236 .021 .325 .007 .948
tailed)
N 11 11 9 11 11 9 11 4 11 11 11 9 11 11 11 11
Real interest rate Pearson -.470 -.530 .614 -.844** .325 .058 -.911** .a -.840** .967** -.440 1 -.671* -.590 .685* -.242
Correlation
Sig. (2- .201 .142 .106 .004 .394 .901 .001 . .005 .000 .236 .048 .095 .042 .530
tailed)
N 9 9 8 9 9 7 9 2 9 9 9 9 9 9 9 9
Accessibility to Pearson .635* .380 -.470 .925** -.182 .897** .722* .891 .921** -.602* .682* -.671* 1 -.176 -.370 -.616*
credit Correlation
Sig. (2- .036 .248 .202 .000 .592 .001 .012 .109 .000 .050 .021 .048 .605 .263 .043
tailed)
N 11 11 9 11 11 9 11 4 11 11 11 9 11 11 11 11
Infrastructure Pearson -.156 -.288 .109 .061 .317 -.515 .281 -.826 .078 -.226 .328 -.590 -.176 1 -.703* .839**
Correlation
Sig. (2- .648 .391 .780 .858 .342 .156 .402 .174 .819 .504 .325 .095 .605 .016 .001
95
tailed)
N 11 11 9 11 11 9 11 4 11 11 11 9 11 11 11 11
Inflation Pearson -.127 .001 .026 -.575 -.235 -.082 -.677* .923 -.587 .592 -.758** .685* -.370 -.703* 1 -.318
Correlation
Sig. (2- .711 .997 .948 .064 .486 .833 .022 .077 .058 .055 .007 .042 .263 .016 .340
tailed)
N 11 11 9 11 11 9 11 4 11 11 11 9 11 11 11 11
Unemployment Pearson -.577
-.615* .500 -.461 .532 -.858** -.240 -.724 -.444 .242 -.022 -.242 -.616* .839** -.318 1
Correlation
Sig. (2- .063 .044 .170 .154 .092 .003 .478 .276 .171 .474 .948 .530 .043 .001 .340
tailed)
N 11 11 9 11 11 9 11 4 11 11 11 9 11 11 11 11
a. Cannot be computed because at least one of the variables is constant or missing.
b. Regression
a
1 GDP Growth . Stepwise (Criteria: Probability-of-F-to-enter <= .050,
b
Model Summary
1 .770a .592 .534 2834871893.077 1.565
a. Predictors: (Constant), GDP Growth
96
b
ANOVA
a
1 Regression 81779080648896600000.000 1 81779080648896600000.000 10.176 .015
Residual 56255490551103400000.000 7 8036498650157630000.000
Total 138034571200000000000.000 8
a. Predictors: (Constant), GDP Growth
a
Coefficients
1 (Constant) 827533863.776 2644652363.090 .313 .763 -4182967920.277 5838035647.829
GDP growth 1838704726.314 576400459.662 .770 3.190 .015 746668747.682 2930740704.945
b
Excluded Variables
Model Beta In t Sig. Partial Correlation Collinearity Statistics
Tolerance
a
1 Market size .449 1.891 .107 .611 .754
a
Political freedom .386 1.459 .195 .512 .715
a
Openness to trade .343 1.206 .273 .442 .676
a
GDP per capita .446 1.888 .108 .610 .764
a
Accessibility to credit .400 1.744 .132 .580 .855
a
Unemployment -.167 -.515 .625 -.206 .622
a. Predictors in the Model: (Constant), GDP growth
97
Romania
a. Correlations
GDP Real
FDI Pearson 1 .636* .949** .961** .847** -.014 -.097 -.774 .955** -.295 .946** -.383 .948** .739** -.736** -.341
Correlation
Sig. (2- .035 .000 .000 .001 .972 .776 .226 .000 .379 .000 .245 .000 .009 .010 .306
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
GDP growth Pearson .636* 1 .725* .736** .301 .260 .654* -.694 .748** -.861** .681* -.029 .573 .866** -.870** .173
Correlation
Sig. (2- .035 .018 .010 .368 .499 .029 .306 .008 .001 .021 .931 .066 .001 .001 .610
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Human capital Pearson .949** .725* 1 .974** .794** .109 -.209 -.888 .977** -.392 .937** -.576 .937** .796** -.920** -.298
Correlation
Sig. (2- .000 .018 .000 .006 .797 .562 .112 .000 .263 .000 .082 .000 .006 .000 .402
tailed)
N 10 10 10 10 10 8 10 4 10 10 10 10 10 10 10 10
Market size Pearson .961** .736** .974** 1 .799** .191 .085 -.804 1.000 -.454 .969** -.397 .969** .856** -.851** -.291
Correlation **
Sig. (2- .000 .010 .000 .003 .623 .804 .196 .000 .160 .000 .226 .000 .001 .001 .385
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Economic Pearson .847** .301 .794** .799** 1 -.084 -.429 -.983* .783** .054 .845** -.652* .907** .446 -.417 -.647*
freedom Correlation
Sig. (2- .001 .368 .006 .003 .830 .188 .017 .004 .876 .001 .030 .000 .169 .202 .031
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Political Pearson -.014 .260 .109 .191 -.084 1 .258 -.896 .213 -.396 .130 -.086 .150 .340 -.419 .209
freedom Correlation
Sig. (2- .972 .499 .797 .623 .830 .503 .104 .581 .291 .739 .827 .700 .370 .261 .590
tailed)
98
N 9 9 8 9 9 9 9 4 9 9 9 9 9 9 9 9
Openness to Pearson -.097 .654* -.209 .085 -.429 .258 1 .836 .108 -.866** .006 .385 -.122 .449 -.507 .636*
trade Correlation
Sig. (2- .776 .029 .562 .804 .188 .503 .164 .751 .001 .987 .242 .721 .166 .111 .035
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Tax rate Pearson -.774 -.694 -.888 -.804 -.983* -.896 .836 1 -.805 -.572 -.869 .935 -.881 -.214 .778 .620
Correlation
Sig. (2- .226 .306 .112 .196 .017 .104 .164 .195 .428 .131 .065 .119 .786 .222 .380
tailed)
N 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4
GDP per Pearson .955** .748** .977** 1.000** .783** .213 .108 -.805 1 -.477 .966** -.391 .963** .864** -.866** -.268
capita Correlation
Sig. (2- .000 .008 .000 .000 .004 .581 .751 .195 .138 .000 .235 .000 .001 .001 .426
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
R& D Pearson -.295 -.861** -.392 -.454 .054 -.396 -.866** -.572 -.477 1 -.366 -.136 -.260 -.650* .810** -.477
Correlation
Sig. (2- .379 .001 .263 .160 .876 .291 .001 .428 .138 .268 .691 .441 .030 .002 .138
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Government Pearson .946** .681* .937** .969** .845** .130 .006 -.869 .966** -.366 1 -.544 .956** .801** -.790** -.369
Sig. (2- .000 .021 .000 .000 .001 .739 .987 .131 .000 .268 .084 .000 .003 .004 .264
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Real interest Pearson -.383 -.029 -.576 -.397 -.652* -.086 .385 .935 -.391 -.136 -.544 1 -.511 -.160 .177 .586
rate Correlation
Sig. (2- .245 .931 .082 .226 .030 .827 .242 .065 .235 .691 .084 .108 .638 .603 .058
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Accessibility to Pearson .948** .573 .937** .969** .907** .150 -.122 -.881 .963** -.260 .956** -.511 1 .737** -.724* -.458
credit Correlation
Sig. (2- .000 .066 .000 .000 .000 .700 .721 .119 .000 .441 .000 .108 .010 .012 .156
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
99
Infrastructure Pearson .739** .866** .796** .856** .446 .340 .449 -.214 .864** -.650* .801** -.160 .737** 1 -.853** -.080
Correlation
Sig. (2- .009 .001 .006 .001 .169 .370 .166 .786 .001 .030 .003 .638 .010 .001 .816
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Inflation Pearson - -.870** -.920** -.851** -.417 -.419 -.507 .778 - .810** -.790** .177 -.724* -.853** 1 -.136
Correlation .736** .866**
Sig. (2- .010 .001 .000 .001 .202 .261 .111 .222 .001 .002 .004 .603 .012 .001 .691
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
Unemployment Pearson -.341 .173 -.298 -.291 -.647* .209 .636* .620 -.268 -.477 -.369 .586 -.458 -.080 -.136 1
Correlation
Sig. (2- .306 .610 .402 .385 .031 .590 .035 .380 .426 .138 .264 .058 .156 .816 .691
tailed)
N 11 11 10 11 11 9 11 4 11 11 11 11 11 11 11 11
b. Regression
a

1 Market size . Stepwise (Criteria: Probability-of-F-to-enter
b
Model Summary

a
1 .961 .923 .914 1365572563.624 1.673
a. Predictors: (Constant), Market size
100
b
ANOVA

a
1 Regression 179208122744313000000.000 1 179208122744313000000.000 96.101 .000
Residual 14918307412183700000.000 8 1864788426522970000.000
Total 194126430156496000000.000 9
a. Predictors: (Constant), Market size
a
Coefficients

1 (Constant) -18868880856.706 2476506461.271 -7.619 .000 -23474063586.695 -14263698126.716
Market size .527 .054 .961 9.803 .000 .427 .626
b
Excluded Variables
a
1 GDP Growth -.154 -1.073 .319 -.376 .459
a
Human capital .266 .591 .573 .218 .052
a
Economic freedom .220 1.438 .194 .478 .362
a
GDP per capita -5.502 -2.095 .074 -.621 .001
a
Government spending .250 .608 .562 .224 .062
a
Infrastructure -.313 -1.905 .099 -.584 .267
a
Inflation .293 1.770 .120 .556 .276
a. Predictors in the Model: (Constant), Market Size
101
Slovak Republic
a. Correlations
GDP Real
FDI Pearson 1 .521 .445 .532 .623 -.338 .640* -.527 .534 -.697* -.579 -.523 -.401 -.527 -.589 -.080
Correlation
Sig. (2- .123 .230 .114 .054 .373 .046 .473 .112 .025 .080 .149 .251 .118 .073 .826
tailed)
N 10 10 9 10 10 9 10 4 10 10 10 9 10 10 10 10
GDP growth Pearson .521 1 .822** .799** .895** .332 .808** .018 .802** -.796** -.640* -.334 -.442 -.863** -.825** -.598
Correlation
Sig. (2- .123 .004 .003 .000 .382 .003 .982 .003 .003 .034 .346 .173 .001 .002 .052
tailed)
N 10 11 10 11 11 9 11 4 11 11 11 10 11 11 11 11
Human capital Pearson .445 .822** 1 .727* .889** .173 .772** .820 .730* -.799** -.722* -.612 -.616 -.912** -.665* -.503
Correlation
Sig. (2- .230 .004 .017 .001 .682 .009 .180 .017 .006 .018 .080 .058 .000 .036 .138
tailed)
N 9 10 10 10 10 8 10 4 10 10 10 9 10 10 10 10
Market size Pearson .532 .799** .727* 1 .928** .277 .871** -.920 1.000** -.771** -.896** -.421 -.263 -.888** -.651* -.751**
Correlation
Sig. (2- .114 .003 .017 .000 .471 .000 .080 .000 .005 .000 .226 .435 .000 .030 .008
tailed)
N 10 11 10 11 11 9 11 4 11 11 11 10 11 11 11 11
Economic Pearson .623 .895** .889** .928** 1 .194 .850** -.908 .930** -.836** -.821** -.429 -.451 -.950** -.790** -.643*
freedom Correlation
Sig. (2- .054 .000 .001 .000 .616 .001 .092 .000 .001 .002 .217 .164 .000 .004 .033
tailed)
N 10 11 10 11 11 9 11 4 11 11 11 10 11 11 11 11
Political Pearson - .332 .173 .277 .194 1 -.055 -.618 .275 .056 .070 .639 .248 -.282 -.475 -.658
freedom Correlation .338
Sig. (2- .373 .382 .682 .471 .616 .889 .382 .474 .887 .858 .088 .519 .463 .197 .054
tailed)
102
N 9 9 8 9 9 9 9 4 9 9 9 8 9 9 9 9
Openness to Pearson .640* .808** .772** .871** .850** -.055 1 -.681 .873** -.913** -.835** -.722* -.539 -.825** -.567 -.406
trade Correlation
Sig. (2- .046 .003 .009 .000 .001 .889 .319 .000 .000 .001 .018 .087 .002 .069 .216
tailed)
N 10 11 10 11 11 9 11 4 11 11 11 10 11 11 11 11
Tax rate Pearson - .018 .820 -.920 -.908 -.618 -.681 1 -.920 .978* .477 -.617 -.933 .954* -.733 .945
Correlation .527
Sig. (2- .473 .982 .180 .080 .092 .382 .319 .080 .022 .523 .577 .067 .046 .267 .055
tailed)
N 4 4 4 4 4 4 4 4 4 4 4 3 4 4 4 4
GDP per Pearson .534 .802** .730* 1.000** .930** .275 .873** -.920 1 -.775** -.896** -.426 -.269 -.891** -.654* -.747**
capita Correlation
Sig. (2- .112 .003 .017 .000 .000 .474 .000 .080 .005 .000 .220 .424 .000 .029 .008
tailed)
N 10 11 10 11 11 9 11 4 11 11 11 10 11 11 11 11
R&D Pearson - -.796** -.799** -.771** -.836** .056 -.913** .978* -.775** 1 .693* .793** .717* .845** .658* .271
Correlation .697*
Sig. (2- .025 .003 .006 .005 .001 .887 .000 .022 .005 .018 .006 .013 .001 .028 .420
tailed)
N 10 11 10 11 11 9 11 4 11 11 11 10 11 11 11 11
Government Pearson - -.640* -.722* -.896** -.821** .070 -.835** .477 -.896** .693* 1 .533 .301 .768** .520 .494
spending Correlation .579
Sig. (2- .080 .034 .018 .000 .002 .858 .001 .523 .000 .018 .113 .369 .006 .101 .122
tailed)
N 10 11 10 11 11 9 11 4 11 11 11 10 11 11 11 11
Real interest Pearson - -.334 -.612 -.421 -.429 .639 -.722* -.617 -.426 .793** .533 1 .827** .520 .166 -.410
rate Correlation .523
Sig. (2- .149 .346 .080 .226 .217 .088 .018 .577 .220 .006 .113 .003 .124 .646 .239
tailed)
N 9 10 9 10 10 8 10 3 10 10 10 10 10 10 10 10
Accessibility to Pearson - -.442 -.616 -.263 -.451 .248 -.539 -.933 -.269 .717* .301 .827** 1 .584 .383 -.294
credit Correlation .401
Sig. (2- .251 .173 .058 .435 .164 .519 .087 .067 .424 .013 .369 .003 .059 .245 .380
tailed)
N 10 11 10 11 11 9 11 4 11 11 11 10 11 11 11 11
103
Infrastructure Pearson - -.863** -.912** -.888** -.950** -.282 -.825** .954* -.891** .845** .768** .520 .584 1 .760** .569
Correlation .527
Sig. (2- .118 .001 .000 .000 .000 .463 .002 .046 .000 .001 .006 .124 .059 .007 .068
tailed)
N 10 11 10 11 11 9 11 4 11 11 11 10 11 11 11 11
Inflation Pearson - -.825** -.665* -.651* -.790** -.475 -.567 -.733 -.654* .658* .520 .166 .383 .760** 1 .480
Correlation .589
Sig. (2- .073 .002 .036 .030 .004 .197 .069 .267 .029 .028 .101 .646 .245 .007 .135
tailed)
N 10 11 10 11 11 9 11 4 11 11 11 10 11 11 11 11
Unemployment Pearson - -.598 -.503 -.751** -.643* -.658 -.406 .945 -.747** .271 .494 -.410 -.294 .569 .480 1
Correlation .080
Sig. (2- .826 .052 .138 .008 .033 .054 .216 .055 .008 .420 .122 .239 .380 .068 .135
tailed)
N 10 11 10 11 11 9 11 4 11 11 11 10 11 11 11 11
b. Regression
a

1 Openness to trade . Stepwise (Criteria: Probability-of-F-to-enter
b
Model Summary

a
1 .640 .409 .335 1091975204.8422700 3.151
104
b
ANOVA

a
1 Regression 6604642880238920000.000 1 6604642880238920000.000 5.539 .046
Residual 9539278783922520000.000 8 1192409847990320000.000
Total 16143921664161400000.000 9
a
Coefficients

1 (Constant) -4976389364.155 3105522887.393 -1.602 .148 -10751258354.914 798479626.604
Openness to trade 97934356.951 41612440.119 .640 2.353 .046 20554025.592 175314688.310
b
Excluded Variables
a
1 Government spending -.147 -.280 .788 -.105 .303
a
Inflation -.334 -1.015 .344 -.358 .679
a
a. Predictors in the Model: (Constant), Openness to trade
105
Slovenia
a. Correlations
GDP Real
GDP Human Market Economic Political Openness per Government interest Accessibility
FDI growth capital size freedom freedom to trade Tax rate capita R&D spending rate to credit Infrastructure Inflation Unemployment
FDI Pearson 1 -.393 .038 -.185 -.292 .522 -.359 -.916 -.186 .084 .327 -.002 -.363 .096 .472 -.064
Correlation
Sig. (2- .231 .918 .586 .383 .150 .308 .084 .584 .807 .326 .996 .336 .778 .142 .851
tailed)
N 11 11 10 11 11 9 10 4 11 11 11 11 9 11 11 11
GDP growth Pearson -.393 1 -.218 .377 .225 -.294 .609 .580 .377 -.161 -.628* -.308 .492 -.005 -.537 -.213
Correlation
Sig. (2- .231 .545 .253 .506 .442 .062 .420 .254 .635 .039 .357 .179 .989 .088 .530
tailed)
N 11 11 10 11 11 9 10 4 11 11 11 11 9 11 11 11
Human capital Pearson .038 -.218 1 .585 -.219 .740* .481 -.944 .589 .628 .063 -.635* .474 .433 -.482 -.608
Correlation
Sig. (2- .918 .545 .076 .543 .036 .189 .056 .073 .052 .863 .049 .236 .211 .158 .062
tailed)
N 10 10 10 10 10 8 9 4 10 10 10 10 8 10 10 10
Market size Pearson -.185 .377 .585 1 .020 .074 .953** -.840 1.000** .657* -.379 -.778** .968** .853** -.671* -.912**
Correlation
Sig. (2- .586 .253 .076 .953 .850 .000 .160 .000 .028 .251 .005 .000 .001 .024 .000
tailed)
N 11 11 10 11 11 9 10 4 11 11 11 11 9 11 11 11
Economic Pearson -.292 .225 -.219 .020 1 -.173 .083 .195 .018 -.273 -.157 -.053 .189 -.017 -.124 -.059
freedom Correlation
Sig. (2- .383 .506 .543 .953 .656 .820 .805 .958 .416 .644 .877 .625 .960 .715 .863
tailed)
N 11 11 10 11 11 9 10 4 11 11 11 11 9 11 11 11
Political Pearson .522 -.294 .740* .074 -.173 1 -.140 -.840 .071 .361 .004 -.470 -.189 .183 .130 -.216
freedom Correlation
Sig. (2- .150 .442 .036 .850 .656 .741 .160 .856 .340 .991 .201 .684 .638 .740 .577
tailed)
106
N 9 9 8 9 9 9 8 4 9 9 9 9 7 9 9 9
Openness to Pearson -.359 .609 .481 .953** .083 -.140 1 -.833 .952** .354 -.313 -.570 .948** .819** -.711* -.865**
trade Correlation
Sig. (2- .308 .062 .189 .000 .820 .741 .374 .000 .315 .379 .086 .000 .004 .021 .001
tailed)
N 10 10 9 10 10 8 10 3 10 10 10 10 9 10 10 10
Tax rate Pearson -.916 .580 -.944 -.840 .195 -.840 -.833 1 -.841 -.884 .377 .635 .a -.990** -.992** .829
Correlation
Sig. (2- .084 .420 .056 .160 .805 .160 .374 .159 .116 .623 .365 . .010 .008 .171
tailed)
N 4 4 4 4 4 4 3 4 4 4 4 4 2 4 4 4
GDP per Pearson -.186 .377 .589 1.000** .018 .071 .952** -.841 1 .656* -.371 -.776** .967** .851** -.678* -.911**
capita Correlation
Sig. (2- .584 .254 .073 .000 .958 .856 .000 .159 .029 .261 .005 .000 .001 .022 .000
tailed)
N 11 11 10 11 11 9 10 4 11 11 11 11 9 11 11 11
R&D Pearson .084 -.161 .628 .657* -.273 .361 .354 -.884 .656* 1 -.109 -.641* .229 .764** -.199 -.618*
Correlation
Sig. (2- .807 .635 .052 .028 .416 .340 .315 .116 .029 .749 .034 .553 .006 .558 .043
tailed)
N 11 11 10 11 11 9 10 4 11 11 11 11 9 11 11 11
Government Pearson .327 -.628* .063 -.379 -.157 .004 -.313 .377 -.371 -.109 1 .424 .282 -.228 .212 .231
Sig. (2- .326 .039 .863 .251 .644 .991 .379 .623 .261 .749 .193 .462 .501 .532 .494
tailed)
N 11 11 10 11 11 9 10 4 11 11 11 11 9 11 11 11
Real interest Pearson -.002 -.308 -.635* -.778** -.053 -.470 -.570 .635 -.776** -.641* .424 1 -.417 -.671* .529 .806**
rate Correlation
Sig. (2- .996 .357 .049 .005 .877 .201 .086 .365 .005 .034 .193 .265 .024 .095 .003
tailed)
N 11 11 10 11 11 9 10 4 11 11 11 11 9 11 11 11
Accessibility to Pearson -.363 .492 .474 .968** .189 -.189 .948** .a .967** .229 .282 -.417 1 .771* -.872** -.717*
credit Correlation
Sig. (2- .336 .179 .236 .000 .625 .684 .000 . .000 .553 .462 .265 .015 .002 .030
tailed)
N 9 9 8 9 9 7 9 2 9 9 9 9 9 9 9 9
107
Infrastructure Pearson .096 -.005 .433 .853** -.017 .183 .819** -.990** .851** .764** -.228 -.671* .771* 1 -.293 -.829**
Correlation
Sig. (2- .778 .989 .211 .001 .960 .638 .004 .010 .001 .006 .501 .024 .015 .382 .002
tailed)
N 11 11 10 11 11 9 10 4 11 11 11 11 9 11 11 11
Inflation Pearson .472 -.537 -.482 -.671* -.124 .130 -.711* -.992** -.678* -.199 .212 .529 -.872** -.293 1 .472
Correlation
Sig. (2- .142 .088 .158 .024 .715 .740 .021 .008 .022 .558 .532 .095 .002 .382 .143
tailed)
N 11 11 10 11 11 9 10 4 11 11 11 11 9 11 11 11
Unemployment Pearson -.064 -.213 -.608 -.912** -.059 -.216 -.865** .829 -.911** -.618* .231 .806** -.717* -.829** .472 1
Correlation
Sig. (2- .851 .530 .062 .000 .863 .577 .001 .171 .000 .043 .494 .003 .030 .002 .143
tailed)
N 11 11 10 11 11 9 10 4 11 11 11 11 9 11 11 11
a. Cannot be computed because at least one of the variables is constant or missing.
b. Regression
b

a
1 Tax rate . Enter
a. All requested variables entered.
b
Model Summary

a
1 .916 .839 .759 247079077.8798370 .287
a. Predictors: (Constant), Tax rate
108
b
ANOVA

a
1 Regression 637811953012971000.000 1 637811953012971000.000 10.448 .084
Residual 122096141451901000.000 2 61048070725950400.000
Total 759908094464872000.000 3
a. Predictors: (Constant), Tax rate
a
Coefficients
Standardized
Unstandardized Coefficients Coefficients 90.0% Confidence Interval for B
1 (Constant) 11702154912.316 3559638453.495 3.287 .081 1308061956.839 22096247867.794
Tax rate -295031517.729 91276306.557 -.916 -3.232 .084 -561557016.703 -28506018.755
109

What Affects The Relationship Between Foreign Direct Investments and GDP Growth Evidence From EEC

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What Affects The Relationship Between Foreign Direct Investments and GDP Growth Evidence From EEC

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Endrit Avdullari What affects the relationship between Foreign Direct Investments and GDP growth: Evidence from

: Evidence from Eastern Europe

What affects the relationship between Foreign Direct

1. Introduction, organisational context and research objectives

2. The Literature Review

Multinational enterprises expanding their influence in foreign countries in order to have

2.1 The relationship between FDI and GDP growth

2.2 The Determinants

3. Research Design and Methods

The development of financial intermediaries is measured by the accessibility to capital

3.1 The Regression Model

(1) Ŷ= bo+b1x1+ b2x2+b3x3+b4x4+b5x5-b6x6+b7x7+b8x8±b9x9-b10x10+b11x11+b12x12±b13x13+b14x14±b15x15

Where: Ŷ = FDI, b0= constant, b1-b15 the coefficients of the variables.

3.2 The Sample and the Time Interval

3.3 Exclusions and Missing Data

Multicollinearity amongst two predicting variables is to be expected especially when using

4. Findings, analysis and evaluation

4.1 Correlation and Regression results

The model for Albania

Bosnia and Herzegovina

The model for B&H

The model for Bulgaria

The model for Croatia

The model for Czech Republic

The model for Macedonia

The model for Poland

The model for Romania

The model for Slovak Rep.

The model for Slovenia

Table. 1a. Correlation results of the variables significantly correlated to FDI.

Determinant^ Countries where the determinant was

Table 1b. Determinants included in the regression models.

4.2 The coefficients

to a better infrastructure, better trained human capital, growth in GDP, decreased

4.2.1 “Wrong” signs

Economic freedom R&D GDP growth

Sig. (2-tailed) .004 .024 .028

N Std. deviation Variance

FDI 11 4.154E9 1.725E19

GDP growth 11 1.7388580333E0 3.024

Human capital 9 .223763281 .050

Market size 11 2.5930241E10 6.724E20

Economic freedom 11 1.9305 3.727

Political freedom 9 .30494502706 .093

Openness to trade 11 6.427150259 41.308

GDP per capita 11 697.8691521 487021.353

R&D 11 .05419925758 .003

Accessibility to credit 11 7.713724738 59.502

Unemployment 11 4.44524 19.760

N Std. deviation Variance

FDI 10 1.3393166E9 1.794E18

Economic freedom 11 6.2176143 38.659

R& D 11 .1812070 .033

Government spending 11 1.500513746 2.252

Openness to trade 11 8.7471856 76.513

Inflation 11 3.1519163658E0 9.935

N Std. Variance N Std. Variance

FDI 11 249812059.9 6.241E16 FDI 11 175523719.8 3.08086E16

Market size 11 800911154.6 6.41459E17 Market size 11 368859150.9 1.36057E17

Economic 11 3.079433242 9.482909091 Political 9 0.304945027 0.09299147

Political 9 0.298306567 0.088986808 Openness 11 5.407232676 29.23816521

Openness to 11 5.440651211 29.6006856 GDP per 11 170.3464452 29017.91138