The Labor Market and Its Impact on Foreign Direct Investment in Central and Eastern Europe
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Publication date: 2017-02-28
GNPJE 2017;287(1):53-68
The aim of this article is to analyze the impact of labor- market related factors on the influx of foreign direct investment to Central and Eastern European countries. Labor costs are expected to have a negative impact on FDI, while the quality and availability of labor are expected to have a positive impact. The econometric study was conducted using panel data for 10 Central and Eastern European countries (Bulgaria, the Czech Republic, Estonia, Lithuania, Latvia, Poland, Romania, Slovakia, Slovenia, and Hungary) from 1999 to 2012. The empirical results indicate that increased labor costs lead to a drop in FDI in Central and Eastern Europe. The expected positive impact of the quality of labor on foreign direct investment inflows is in part reflected in the obtained results. One of two measures of the quality of labor used in the study, namely the share of people with tertiary education attainment in the population of people aged 30–34, has a statistically significant impact on FDI. This may suggest that foreign investors are looking for educated people, though mainly those who are relatively young. This conclusion, however, should be subject to further verification. The quality of labor, measured by the unemployment rate, is not identified in the analysis as a statistically significant determinant of foreign direct investment.
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