Back Matter
Author: Yuko Kinoshita1
  • 1 https://isni.org/isni/0000000404811396, International Monetary Fund

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Appendix 1. Emerging Europe: Export Equation

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All regressions include a contant and year dummies. ***, ** and * indicate 1%, 5%, and 10% significance levels, respectively.

In system-GMM, endogenous IV are log(REER) and lagged EX/Y. Exogenous IV include FDI stock in the region, political risk, corruption, rule of law, inflation and overall fiscal balance.

Appendix 2. Emerging Europe: Import Equation

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1/ All regressions include a contant and year dummies. ***, ** and * indicate 1%, 5%, and 10% significance levels, respectively.2/ In system-GMM, endogenous IV are log(REER) and lagged IM/Y. Exogenous IV include FDI stock in the region, political risk, corruption, rule of law, inflation and quality of bureaucracy.

Appendix 3. Descriptive Statistics

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Appendix 4. Data Descriptions and Sources

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1

I thank Albert Jaeger for the initial motivation and extensive discussion throughout this project. I also thank Bas Bakker, Christian Bellak, Mark De Broeck, Christoph Klingen, Johan Mathisen, Jacques Miniane, Srobona Mitra, Josef Pöschl, Roman Stöllinger, Alexander Tieman, Ivanna Vladkova-Hollar, and Jianping Zhou and participants at IMF- EUR Seminar and WIIW Seminar in International Trade for their valuable comments. My special thanks to Josef Pöschl for providing supplementary data on FDI.

2

See Mody (2004) for the survey of FDI literature.

3

Levchenko and Mauro (2006), Tong and Wei (2009).

4

See Chapter 3 of IMF, Regional Economic Outlook: Europe, October 2010.

5

Other investment flows or bank loans became another important category of capital inflows after 2003. See Bakker and Gulde (2010).

6

Intercompany loans (i.e., loans between a parent and a subsidiary) are recorded as FDI in some countries, which may exaggerate the size of FDI inflows (Ostry and others, 2010, SPN/10/104).

7

In this study, the tradable sectors are defined as manufacturing, agriculture, mining, retail, hotels and restaurants and the nontradable sectors are construction, electricity, transport, communication, real estate, and financial intermediation.

8

FDI in the tradable sector can also lead to a reduction in imports, as previously imported goods are now produced domestically.

9

The export equation is based on the analytical framework proposed by Goldstein and Khan (1985), in which FDI stock is a proxy of non-price factor.

10

See Campos and Kinoshita (2003) for the literature review.

11

As a share of tradable FDI and nontradable FDI add up to one, the coefficients of each determinants of nontradable FDI are one minus the coefficients obtained from tradable FDI. For export-oriented FDI, see Hanson, Mataloni, and Slaughter (2001).

12

See Campos and Kinoshita (2003) for further discussion on different types of FDI.

14

Their study is based on a gravity model between seven European source countries and eight host countries i.e., Czech Republic, Hungary, Poland, Slovakia, Slovenia, Bulgaria, Croatia, and Romania for the period of 1995– 2004.

15

Wei (2000) finds that business environment such as low corruption and high quality of bureaucracy is the key reason for foreign investors to choose a investment location.

16

Results are available upon request.

17

The source data on financial integration also include the sub-category of restrictions on FDI. However, the CESE countries have mostly no restrictions on FDI for 2003-07. Instead, we use an aggregate measure of controls on capital inflows (including FDI).

18

The country case studies on controls on capital inflows include Chile, Columbia, and Brazil. See Gosh et al (2010) for more details.

19

The averages of EBRD large-scale privatization index in 2008 are 4 (CEE exc. Poland), 3.8 (Bulgaria and Romania), and 3.9 (Baltics), and 3.1 (Western Balkans exc. Bulgaria and Romania). See also EBRD (2004), Spotlight on South-eastern Europe: An Overview of Private Sector Activity and Investment.

20

In the Czech Republic and the Slovak Republic, growth during the boom was much more balanced than in the other countries. See Bakker and Gulde (2010) and WIIW(2010).

21

See Chapter 2 in IMF (2010c), REO: Europe, October 2010.

Sectoral Composition of Foreign Direct Investment and External Vulnerability in Eastern Europe
Author: Yuko Kinoshita