SENTIMENT, PERCEPTION AND POLICY DETERMINANTS OF FOREIGN DIRECT INVESTMENT TO EUROPEAN DEVELOPING COUNTRIES

In this paper we have investigated the impact on FDI of different factors, at quarterly and annual frequency, as reflected by economic variables (GDP, labour cost), market variables indicating country risk perception (equity markets volatility, CDS), economic sentiment and confidence indicators (computed by the European Commission) and investor perception indicators" (various measures of transparency, public sector governance and accountability, political stability, law enforcement and control of corruption computed by the World Bank). Our analysis was done for ten developing European economies, using a stepwise panel regression approach and a one-lag panel VAR. Our main results confirm the effect of GDP and labour cost on Net FDI that were also identified previously. Also, we found a significant influence from CDS prices, which is aligned with previous findings on the influence of credit ratings. At the same time, our results showed a statistically significant influence on FDI from Voice and Accountability, Government Effectiveness, Regulatory Quality and Control of Corruption.