The Determinants of FDI Flows from the EU‐15 to the Visegrad Group Countries – A Panel Gravity Model Approach


Objective: The objective of this paper is to evaluate determinants of the general FDI flow to Visegrad countries and the effect of participation in EMU and EU.

Research Design & Methods: It was decided to investigate how augmented Gravity Model of trade allows identifying and evaluating the significance of pull and push factors of FDI. In an empirical analysis of panel data Hausman‐Taylor estimator was used because of the time‐invariant variables presence.

Findings: While investment decisions regarding the choice of country are determined by the size of the target market, the distance is still a negative factor in creation of FDI volume. Additionally, it was proven that membership in EMU, differences in taxation, historical background, access to the sea and prices stability have significant impact of FDI stock formation in each country belonging to V4. Is was also noted that Poland became a leader of the V4 as well as EU‐12 FDI market sourcing from the old EU Member States.

Implications & Recommendations: It is necessary to develop an “FDI attracting mechanism” using existing resources. Business regulations and taxation policy as well as main macroeconomic variables which are responsible for the economy standing are also examined as attracting the FDI flow.

Contribution & Value Added: The originality of this work lies in studying some aspects of FDI inflow into the group of both similar and different countries in economic measures terms.


Visegrad countries; V4; FDI; gravity theory; panel

Ahmed, A.D., Cheng E., & Messinis G., 2008, The Role of Exports, FDI and Imports in Development: New Evidence from Sub‐Saharan African Countries, Centre for Strategic Economic Studies, Victoria University, Working Paper, vol. 13, no. 39, pp. 3‐11.

Alan, A. & Bevan, S.E., 2000, ‘The determinants of Foreign Direct Investment in Transition Economies’, William Davidson Institute Working Paper, no. 342, pp. 12‐16.

Allen & Overy LLP, 2006, Foreign Direct Investment in Central and Eastern Europe, London: Allen & Overy LLP.

Anderson, J.E., 1979, ‘A Theoretical Foundation for the Gravity Equation’, American Economic Review, vol. 69, no. 1, pp. 106–116.

Babula, E. & Kamińska, T., 2013, ‘Does the Gravity Model Work as Regards FDI?’ Proceedings of Annual Paris Business and Social Science Research Conference, Paris, France, 4 ‐ 5 July 2013.

Babunek, O., 2012, ‘Foreign Direct Investment in Visegard Four and the Main Traiding Partners’, Statistika, vol. 49, no. 4, pp. 3‐9.

Baltagi, B.H., 2005, ‘Econometric Analysis of Panel Data’, Chichester: Wiley & Sons.

Brenton, P., Mauro F.D. & Lucke M., 1999, ‘Economic integration and FDI: An Empirical Analysis of Foreign Investments in the EU and in Central and Eastern Europe’, Empirica, vol. 26, no. 2, pp. 2‐13.

Brun, J.F., Carrere, C., Guillaumont, P., & Melo, J., 2005, ‘Has Distance Died? Evidence from a Panel Gravity Model’, The World Bank Economic Review, vol. 3, no. 15, pp. 5‐16.

Chamberlain, G. & Moreira, M.J., 2006, ‘Decision theory applied to a linear panel data model, Department of Economics – Harvard University, Cambridge, pp. 1‐23.

Czarny, E. & Folfas, P., 2011, ‘Modele grawitacji jako narzędzie analityczne w ekonomii międzynarodowej’, Portal Innowacyjnego Transferu Wiedzy w Nauce PITWIN,

Daszkiewicz N. & Wach K., 2013. Małe i średnie przedsiębiorstwa na rynkach międzynarodowych, Kraków: Wydawnictwo Uniwersytetu Ekonomicznego.

Duce, M., 2003, Definitions of Foreign Direct Investment (FDI): A Methodological Note, Banco de Espana, Final draft, July 31.

Dunning, J.H., 1998, ‘Location and the Multinational Enterprise: A Neglected Factor’, Journal of International Business Studies, vol. 29, no. 1, pp. 50‐53.

Egger, P. & Pffaffermayr, M., 2004, ‘The Impact of Bilateral Investment Treaties on Foreign Direct Investment, Journal of Comparative Economics, vol. 32, no. 4, pp. 3‐13.

Estrin, S. & Klaus, E.M, 2008, ‘Foreign Direct Investment in Transition Economies: Strengthening the Gains from Integration’, UN Conference Strengthening Integration of the Economies in Transition into the World Economy through Economic Diversification.

Estrin, S. & Millica, U., 2013, ‘FDI into transition economies: are the Balkans different?’ 12th EACES conference and the International Conference on occasion of the 75th Anniversary of the Faculty of Economics, University of Belgrade (Belgrade, 20‐22 September 2012).

Folfas, P., 2011, ‘FDI between EU member states: Gravity model and taxes’, Warsaw: Warsaw School of Economics – Institute of International Economics.

Hausman, J.A. & Taylor, W.E. 1981 ‘Panel Data and Unobservable Individual Effects’, Econometrica, vol. 49, no. 6 , pp. 1377–1398.

Hunya, G. & Richter, S., 2011, ‘Mutual trade and investment of the Visegrad countries before and after their EU accession’, Eastern Journal of European Studies, vol. 2, no. 2, pp. 4‐11.

Iwasaki, I. & Saganuma, K., 2013, ‘A Gravity Model of Russian Trade: The Role of Foreign Direct Investment and Socio‐ Cultural Similarity’, RRC Working Paper Series, vol. 4, no. 40, pp. 231‐ 243.

Jambor, A., 2013, Country‐ specific determinants of horizontal and vertical intra‐ industry agrifood trade of the Visegrad Countries, FIW Working Paper, no. 104, pp. 34‐49.

Julio, P., Pinherio‐Alves, R. & Tavares, J., 2013, Foreign Direct Investment and Institutional Reform: Evidence and an application to Portugal, Banco de Portugal Working Paper, vol. 2, no 6, pp. 232‐241.

Karp, A.H., 1996, ‘Time series magic: smoothing, interpolation, expanding and collapsing: time series data with proc expand’, Sierra Information Services, Inc., San Francisco, California.

King, M. L., & Wu, P. X., 1997, ‘Locally Optimal one‐sided Tests for Multiparameter Hypothesis’. Econometric Reviews, vol. 33, pp. 523–529.

Konstantinos, K., Matthew, G, Dimitrios, T, 2010, `The Gravity Model Specification for Modelling International Trade Flows and Free Trade Agreement Effects: A 10‐Year Review of Empirical Studies`, The Open Economics Journal, 12‐17.

Lada, K. & Tchorek, G. 2008, ‘Przepływy bezpośrednich inwestycji zagranicznych a utworzenie strefy euro’, Available from:

/analityczne/LadaP.pdf> (accessed December 2013).

Mauro, F., 2000, ‘The impact of economic integration on FDI and Exports: A gravity model approach’, Center for European Policy Studies, Working document, vo. 3, no. 156, pp. 31‐ 41.

Paas, T. & Tafenau, E., 2005, ‘European trade integration in the Baltic Sea Region. A gravity model based analysis’, HWWA Discussion Paper, vol. 3, no. 331, pp. 12‐23.

Paniagua, J., 2011, ‘FDI Gravity Equation: Models, Estimations and Zeros’, Catholic Universyty of Valencia.

Pavlov, V., 2001, ‘Missing Data and Interpolation in Dynamic Term Structure Models’, Queensland University of Technology.

Porter, E. M., 1979, ‘How Competitive Forces Shape Strategy’, Harvard Business Review, vol. 12, no. 43, pp. 312‐319.

Portes, R. & Rey, H. 2005, ‘The Determinants of Cross‐Border Equity Flows’, Journal of International Economics, vol. 65, No. 2, pp. 121‐133.

Rajan, S. & Hattari, R., 2008, ‘Sources of FDI Flows in Developing Asia: The Roles of Distance and Time Zones’, ADB Institute Working Paper, vol. 4. no. 117, pp. 4‐7.

Suder, K. & Sohn, H., 2012, ‘FDI in Central and Eastern European Countries: Impact to Neighbors and Regional Agglomeration Effect’, Preliminary Draft.

Szczepkowska, A., & Wojciechowski, L., 2002, ‘Możliwości wykorzystania modelu grawitacji do analizy bezpośrednich inwestycji zagranicznych w Polsce’ In: Piech, K. & Szczodrowski, G. (eds), Przemiany i perspektywy polskiej gospodarki w procesie integracji z gospodarką światową, Warszawa: Instytut Wiedzy, pp. 141‐154.

Turan, S. & Sotiros, B, 2013, ‘Governance and Foreign Direct Investment in Latin America: A Panel Gravity Model Approach’, Latin American Journal of Economics, vol. 50, no. 1, pp. 107‐131.

Wach, K., 2012, Europeizacja małych i średnich przedsiębiorstw: rozwój przez umiędzynarodowienie, Warszawa: Wydawnictwo Naukowe PWN.


Published : 2013-03-12

Wojciechowski, L. (2013). The Determinants of FDI Flows from the EU‐15 to the Visegrad Group Countries – A Panel Gravity Model Approach. Entrepreneurial Business and Economics Review, 1(1), 7-22.

Liwiusz Wojciechowski
Cracow University of Economics  Poland
PhD Student at the Cracow University of Economics

Authors who publish with this journal agree to the following terms:

  1. Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a CC BY-ND licence that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
  2. Authors are asked to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.

 Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access). We advise to use any of the following reserach society portals:

Most read articles by the same author(s)