Economic reform, state capture, and international investment in transition economies

The inflows of foreign direct investment (FDI) in transition economies are affected by political factors. This paper examines the empirical effects of two factors: (i) the level of economic reform; and (ii) the level of ‘capture’ of the state by political and economic elites, on the level of FDI inflows using both OLS and Tobit models for 18 countries from 1993–97. Both of these factors have large and statistically significant effects on FDI inflows.