Determinants of inward FDI in Ukraine: Does political stability matter?

Explanatory variable	(1)	(2)	(3)	(4)
GDP-SUM	0.885^*** (0.168)	0.885^*** (0.168)	0.885^*** (0.168)	0.885^*** (0.168)
GDP-DIFF	0.055 (0.041)	0.055 (0.041)	0.055 (0.041)	0.055 (0.041)
HC-DIFF	0.411^** (0.188)	0.411^** (0.187)	0.411^** (0.188)	0.411^** (0.188)
DISTANCE	−0.895^*** (0.083)	−0.893^*** (0.083)	−0.893^*** (0.083)	−0.895^*** (0.083)
TF_source	0.091^*** (0.026)	0.091^*** (0.026)	0.091^*** (0.026)	0.091^*** (0.026)
TF_Ukraine	1.130 (2.235)	0.511 (1.211)	0.511 (1.211)	0.511 (1.211)
IF_Ukraine	−0.030 (0.074)	−0.007 (0.055)	−0.007 (0.055)	−0.007 (0.055)
STAB	1.946 (3.020)
DEMOC		1.293 (1.882)
AUTOC			−1.293 (1.882)
POLITY				0.646 (0.941)
Constant	−101.188 (184.833)	−58.723 (112.411)	−50.960 (101.417)	−54.842 (106.907)
Time effects	No	No	No	No
Observations	700	700	700	700
R²	0.068	0.068	0.068	0.068

Note: Robust standard errors in parentheses;

*** p < 0.01,

** p < 0.05,

* p < 0.1.

Source: Own calculations.

Table 2

Benchmark estimation with fixed time effects results

Explanatory variable	(1)	(2)	(3)	(4)
GDP-SUM	0.884^*** (0.168)	0.884^*** (0.168)	0.884^*** (0.168)	0.884^*** (0.168)
GDP-DIFF	0.055 (0.041)	0.055 (0.041)	0.055 (0.041)	0.055 (0.041)
HC-DIFF	0.411^** (0.187)	0.411^** (0.187)	0.411^** (0.187)	0.411^** (0.188)
DISTANCE	−0.893^*** (0.083)	−0.893^*** (0.083)	−0.893^*** (0.083)	−0.893^*** (0.083)
TF_source	0.091^*** (0.026)	0.091^*** (0.026)	0.091^*** (0.026)	0.091^*** (0.026)
TF_Ukraine	−0.149 (0.368)	−0.149 (0.368)	−0.149 (0.368)	Omitted N/A
IF_Ukraine	0.021 (0.065)	0.021 (0.065)	0.021 (0.065)	0.014 (0.072)
STAB	Omitted N/A
DEMOC		Omitted N/A
AUTOC			Omitted N/A
POLITY				0.147 (0.363)
Constant	221.094 (369.924)	221.094 (369.624)	221.094 (369.624)	155.140 (483.417)
Time effects	Yes	Yes	Yes	Yes
Observations	700	700	700	700
R²	0.068	0.068	0.068	0.068

Note: Robust standard errors in parentheses;

*** p < 0.01,

** p < 0.05,

* p < 0.1.

Source: Own calculations.

Table 3

One-period lagged estimation results

Explanatory variable	(1)	(2)	(3)	(4)
GDP-SUM	0.969^*** (0.161)	0.970^*** (0.161)	0.970^*** (0.161)	0.970^*** (0.161)
GDP-DIFF	0.037 (0.041)	0.037 (0.041)	0.037 (0.041)	0.037 (0.041)
HC-DIFF	0.435^** (0.181)	0.435^** (0.182)	0.435^** (0.182)	0.435^** (0.182)
DISTANCE	−0.913^*** (0.091)	−0.913^*** (0.091)	−0.912^*** (0.091)	−0.912^*** (0.091)
TF_source	0.075^** (0.024)	0.076^** (0.024)	0.076^** (0.024)	0.076^** (0.024)
TF_Ukraine	−0.143 (0.281)	−0.125 (0.295)	−0.125 (0.295)	−0.125 (0.295)
IF_Ukraine	0.008 (0.088)	0.004 (0.088)	0.004 (0.088)	0.004 (0.088)
STAB	0.202 (0.455)
DEMOC		0.365 (0.560)
AUTOC			−0.365 (0.560)
POLITY				0.182 (0.280)
Constant	4.998 (24.35)	1.100 (27.488)	3.296 (25.52)	2.198 (26.472)
Time effects	No	No	No	No
Observations	700	700	700	700
R²	0.063	0.063	0.063	0.063

Note: Robust standard errors in parentheses;

*** p < 0.01,

** p < 0.05,

* p < 0.1.

Source: Own calculations.

Table 4

One-period lagged estimation results with time effects

Explanatory variable	(1)	(2)	(3)	(4)
GDP-SUM	0.971^*** (0.163)	0.971^*** (0.163)	0.971^*** (0.163)	0.971^*** (0.163)
GDP-DIFF	0.037 (0.041)	0.037 (0.041)	0.037 (0.041)	0.037 (0.041)
HC-DIFF	0.435^** (0.181)	0.435^** (0.181)	0.435^** (0.181)	0.435^** (0.181)
DISTANCE	−0.913^*** (0.091)	−0.913^*** (0.091)	−0.913^*** (0.091)	−0.913^*** (0.091)
TF_source	0.076^** (0.024)	0.076^** (0.024)	0.076^** (0.024)	0.076^** (0.024)
TF_Ukraine	−0.123 (0.302)	−0.313 (0.312)	−0.313 (0.312)	−0.113 (0.310)
IF_Ukraine	0.015 (0.096)	0.025 (0.097)	0.025 (0.097)	0.009 (0.097)
STAB	0.289 (0.453)
DEMOC		Omitted N/A
AUTOC			Omitted N/A
POLITY				0.179 (0.281)
Constant	3.112 (26.290)	18.736 (27.531)	18.736 (27.531)	1.124 (28.722)
Time effects	Yes	Yes	Yes	Yes
Observations	700	700	700	700
R²	0.063	0.063	0.063	0.063

Note: Robust standard errors in parentheses;

*** p < 0.01,

** p < 0.05,

* p < 0.1.

Source: Own calculations.

Table A1

Sample of countries used in the estimation

Sample

Albania, Algeria, Angola, Argentina, Armenia, Australia, Austria, Bahrain, Bangladesh, Barbados, Belgium, Belize, Benin, Bolivia, Botswana, Brazil, Brunei Darussalam, Bulgaria, Burkina Faso, Burundi, Cambodia, Cameroon, Canada, Central African Republic, Chile, China, Colombia, Costa-Rica, Croatia, Cyprus, Czech Republic, Denmark, Dominican Republic, D.R. of the Congo, Ecuador, El Salvador, Estonia, Ethiopia, Finland, Fiji, France, Gabon, Gambia, Germany, Ghana, Greece, Guatemala, Haiti, Honduras, Hungary, Hong Kong, Japan, Jamaica, Jordan, India, Indonesia, Italy, Iran, Iraq, Israel, Kazakhstan, Kenya, Kyrgyzstan, Kuwait, Latvia, Lesotho, Liberia, Lithuania, Luxembourg, Macau, Madagascar, Malaysia, Mali, Malawi, Maldives, Malta, Mauritius, Mauritania, Mexico, Moldova, Mongolia, Morocco, Mozambique, Myanmar, Namibia, Nepal, Netherlands, New Zealand, Nicaragua, Niger, Nigeria, Norway, Pakistan, Panama, Paraguay, Peru, Philippines, Poland, Portugal, Qatar, Korea (Rep of), Romania, Rwanda, Saudi Arabia, Senegal, Serbia, Sierra Leone, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Syria, Sudan, Swaziland, Sweden, Switzerland, Tanzania, Taiwan, Tajikistan, Thailand, Togo, Trinidad and Tobago, Tunisia, Turkey, Venezuela, Vietnam, Yemen, Ukraine, Uruguay, Uganda, United Arab Emirates, United Kingdom, United States, Zambia, Zimbabwe

[i] Source: Own summary.

Table A2

Variable description

Variable	Description	Data source
FDI	Bilateral direct investment equity stock data from non-resident entities, includes investment by a direct investor in its direct investment enterprise (immediate or not), retail funds, real estate investment (including investment properties and vacation homes), pass-through transactions, transactions that reach or surpass the threshold of 10 percent or more voting power, reverse investment by a direct investment enterprise in its own immediate or indirect investor [IMF, 2009]. Calculated as: Direct investment enterprises to direct investor equity – reverse investment equity + nonresident equity – resident equity	State Statistics Service of Ukraine

GDP-SUM	Log of GDP sum (in $US million) ln(Yit + Yjt)²	Penn WorldTable 9.1
GDP-DIFF	Log of squared GDP difference (in $US million) ln(Yit − Yjt)²
HC-DIFF	Log of human capital difference, adjusted for the number of employed population ln \|Hit / Lit – Hjt / Ljt\|

DISTANCE	Log of geographical distance between the source and host countries (between capital cities, in km)	CEPII

TF	Trade freedom index	Heritage
IF	Investment freedom index	Foundation

STAB	Political Stability and Absence of Violence/Terrorism index that measures perceptions of the likelihood of political instability and/or politically-motivated violence, including terrorism	Worldwide Governance Indicators

DEMOC	Democracy index that measures the presence of democratic institutions and procedures, governance constraints, civil liberties and degree of political participation	Center for Systemic Peace
AUTOC	Autocracy index that measures the governance properties such as lack of regularized political competition and concern for political and civil freedoms
POLITY	Polity index is measured as a difference between democracy and autocracy indices, it scores country's political system between +10 (strongly democratic) to −10 (strongly autocratic)

[i] Source: Own summary.

Table A3

Summary statistics

Variable	Mean	SD	Min	Max
FDI	245.099	1204.861	0	17725.6
GDP-SUM	13.508	0.740	12.850	16.779
GDP-DIFF	25.500	2.242	12.496	33.407
HC-DIFF	−1.095	1.960	−8.390	3.197
DISTANCE	5712.067	3755.745	399.460	17284.29
TF_source	76.825	10.596	40.6	90
TF_Ukraine	85.62	0.627	84.4	86.2
IF_Ukraine	20	3.164	15	25
STAB	−1.698	0.463	−2.02	−0.78
DEMOC	5.2	0.400	5	6
AUTOC	0.8	0.400	0	1
POLITY	4.4	0.800	4	6

[i] Source: Own summary.

Table A4

Correlations between variables

POLITY											1
AUTOC										1	−1
DEMOC									1	−1	1
STAB								1	0.992	−0.992	0.992
IFC_Ukraine							1	0.061	0.000	0.000	0.000
TF_source						1	0.050	−0.986	−0.972	0.972	−0.972
TF					1	0.020	0.014	−0.022	−0.025	0.025	−0.025
DISTANCE				1	−0.120	0.000	0.000	0.000	0.000	0.000	0.000
GDP SUM			1	0.011	0.046	0.001	0.009	0.000	−0.001	0.001	−0.001
HC-DIFF		1	−0.133	0.050	0.035	−0.005	−0.003	0.006	0.006	−0.006	0.006
GDP-DIFF	1	−0.058	0.937	0.041	0.029	0.008	0.007	−0.009	−0.010	0.010	−0.010
Variable	GDP-DIFF	HC-DIFF	GDP SUM	DISTANCE	TF_source	TF_Ukraine	IF_Ukraine	STAB	DEMOC	AUTOC	POLITY

[i] Source: Own calculations.

References

Authors

Metrics

Articles in this issue

DOI: https://doi.org/10.2478/ijme-2020-0021 | Journal eISSN: 2543-5361 (formerly 2299-9701) | Journal ISSN: 2299-9701

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Language: English

Page range: 243 - 254

Submitted on: Apr 20, 2020

Accepted on: Aug 18, 2020

Published on: Sep 30, 2020

Published by: SGH Warsaw School of Economics

In partnership with: Paradigm Publishing Services

Publication frequency: 4 issues per year

Keywords:

foreign direct investment,

political stability,

Pseudo-Poisson maximum likelihood,

Ukraine

JEL:

F23,

P33

Related subjects:

Business and economics,

Business management,

Management accounting, financial controlling, cost calculation, investment

© 2020 Andrzej Cieślik, Oleg Gurshev, published by SGH Warsaw School of Economics
This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Volume 56 (2020): Issue 3 (September 2020)