THE DETERMINANTS OF FOREIGN DIRECT-INVESTMENT IN TRANSFORMING ECONOMIES - EMPIRICAL-EVIDENCE FROM HUNGARY AND CHINA

This paper analyzes what factors best explain foreign capital inflows into Hungary and China during the period 1978-92. The size of the host-country markets is found to play a positive role, while the cost-of-capital variables and political instability are negatively correlated with investment inflows. It supports the hypothesis that low-cost labour and currency depreciation is an important factor in explaining how much foreign capital flows into a particular country. There is little evidence to support classical hypotheses concerning tariff barriers and import variables. The OECD growth rates show significant positive correlation with FDI in Hungary.