(The) impact of the emergence of China on EU-7s FDI to Central and Eastern European countries

Abstract

Many countries have been paying attention to rapidly emerging China. China has been one of the most popular destinations for investment due to its low cost of labor and potential of access to further East Asian market. In addition to its fast growing economy, Chinas accession to WTO in 2001 helped to lure more foreign investors. Most developing countries fear that their inflow of FDI could be diverted away into China. Particularly, the Western EU member states who have long been one of the largest investors of Central and Eastern European countries have recently declared to strengthen their economic relationship with China by increasing their outflow of FDI. This paper aims to explore whether there is a presence of China effect in EU-7 (Austria, Belgium, France, Germany Luxemburg, Netherlands, Italy)s outflow to Central and Eastern European Countries (Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia). In order to test the FDI diversion, two gravity models will be used: 1) to test the effect of Chinas increasing FDI inflows on CEECs with dated panel data of inflow of FDI from Western EU-7 countries

2) to find out whether Chinas accession to WTO in 2001 has affected inflow of FDI in CEEC.