Abstract

This paper follows a theoretical and empirical evidence identified by literature review of FDI determinants. The paper aims at explaining what motivates foreign investors to operate in transition economies. Therefore, the purpose of the paper is to identify the relevant factors determining the investment decisions of foreign investor in transition countries. In this regard, empirical studies indicate that transition specific determinants and classical determinants are considered as the most important factors that explain the motives of multinational companies to do business in transition countries. However, the choice of FDI location depends from preliminary analysis of country specific advantages and disadvantages; therefore the OLI paradigm with a focus identifying the location specific advantages is reviewed both theoretically and empirically in the study. Gravity factors that determine the foreign investment decision, with application to transition economies are also reviewed in this regard.