FDI Determinants: Case of Romania

Even if the FDI is important for all host countries, for those in the process of transition to a market economy the FDI presence is critical under many respects. Not all transition countries benefited from the very beginning from the FDI presence. Several determinant factors explain the differences. Romania was lagging behind regarding the interest of foreign investors during the first 9–10 years of transition. The situation has improved greatly. The aim of this paper is to identify the main factors determining the evolution in the FDI/GDP (%) as proxy for the FDI evolution. To this end, we used the method of factors analyses. The four resulted determinant factors are: Market size and potential, Reform progress, Business liberalization, and Labor cost. A linear regression model expresses the connections between dependent variable and the four determinant factors. The paper concludes with certain policy implications.

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