Investment in the Heart of Europe: What Shapes FDI in the Visegrad Countries?
Investment in the Heart of Europe: What Shapes FDI in the Visegrad Countries?

Summary/Abstract: This study investigates the determinants of foreign direct investment (FDI) in the Visegrad Group (V4) countries, focusing on the changing relevance of cost-, market-, and institutional-related factors. The analysis employs a panel Autoregressive Distributed Lag (P-ARDL) model and panel Granger causality tests to examine both the long-run and short-run relationships between FDI and a set of macroeconomic, and institutional-related variables. The dataset covers the V4 countries over a time span between 1996 and 2023 and captures both permanent and transitory changes in determinants of FDI. The results show that in the long-run, average wage levels and government effectiveness are significant structural determinants, highlighting the importance of institutional quality and labour costs in FDI location decisions. In the short term, FDI inwards are mainly influenced by GDP growth, R&D expenditure, trade openness, and inflation dynamics. The results indicating the significance of factors determining FDI in the Visegrad Group countries may be of particular importance for policymakers seeking to enhance investment attractiveness in a globally unstable economic environment.

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