Do FDI Patterns Differ Between Manufacturing and Service Sector in CEE Countries

In the paper, we presented results of the research, realized with the goal to test main determinants influencing on FDI stock in manufacturing and services in transitional countries, precisely CEE countries. Some of the conceptual issues identified under possible differences of FDI determinants in manufacturing and services we started with were: (l) What are the most important determinants of FDI in manufacturing and services? (2) Are there significant differences between the main influencing determinants/factors between manufacturing and services? (3) Are there significant differences between FDI determinants for developing countries/transitional countries and industrial countries? (4) What are the implications for policies and strategies to attract FDI in different industries for developing countries? Dependent variable used in this paper is the FDI stock p/c (NACE I-digit) into manufacturing and service sector for each observed CEE country, in the period 1999-2006. In case of our sample countries, a set of possible FDI determinants was selected from the pool of traditional and institutional-related determinants in the literature, and relevant indicators available. Empirical analysis was conducted by the regression assessment of panel data, using the set of data for CEE countries, studied over eight years. We estimated fixed effects model and OLS with panel-corrected standard errors (PCSEs) using Prais-Winsten to take into account the AR(l) process. Two out of four traditional variables showed differences between the manufacturing and service sector: (a) Inflation, as the indicator of macroeconomic instability, was not statistically significant for manufacturing sector but it was significant for service sector; (b) wages had statistically significant influences on the FDI in manufacturing sector, but had no influence on service sector. Looking at the results of testing indicators we had found significant differences between all indicators: (a) Privatization influenced on FDI attractions in manufacturing sector and it was significant for service sector, with negative influence; (b) wages had statistically significant influences on the FDI in manufacturing sector, but had no influence on service sector; and finally (c) other two traditional variables-market size indicated through GDP p/c and openness of economy had the same results for both, manufacturing and service sector.