Foreign Direct Investment in Transition Countries: a Dynamic Analysis at Firm Level

In this paper we argue that foreign direct investment in the transition countries has a dynamic nature, by using firm level data for nine transition countries for the period 1996-2002. Moreover, we differentiate the sectors of activity by the degree of technology involved, using the OECD classification based on technology. By doing this, our empirical model proves that there is some heterogeneity at sector level in the behavior of the foreign firms that invest in the transition countries. Foreign firms that invest in low-technology manufacturing activities and are profitable will invest more in the next year. However, profits do not matter for foreign firms that invest in services and in high-technology manufacturing activities . ∗Preliminary. †I would like to thank Professor Michael Creel and Professor Rosella Nicolini for their invaluable advice and support. Responsibilities for errors and omissions are my own.