| Abstract [eng] |
This paper provides analysis of the determinants that have the biggest influence on differences in foreign direct investment stocks between Lithuania and Estonia and the main objective of the master thesis is to identify the factors that allow Estonia to attract higher FDI flows than Lithuania throughout the post-Soviet period until these days despite a similar historical past and economic situation of both states or the time of the accession to the EU. Through the course of the paper academic literature on foreign direct investment (FDI) determinants in other EU countries, positive or negative impacts that the investment flows may have on the economy of the host country and researches that are related to FDI flows in these two Baltic States are examined. The following hypotheses are examined in order to identify the possible causes of differences in FDI stocks between Lithuania and Estonia. Differences in FDI flows in Lithuania and Estonia are related to different privatization policies in the post-Soviet period; the earlier time of Estonia's accession to the euro area; higher quality infrastructure in Estonia; higher political stability and institutional quality in Estonia; lower labour cost and higher employees knowledge in Estonia; more competitive Estonian tax system; more favourable legal environment in Estonia; lower level of corruption in Estonia. Empirical research is divided into two complementary parts – regression analysis and qualitative survey – that allows to ensure reliability and validity of a study and to test a wider range of independent variables. The results suggest that different privatization policies in the post-Soviet period, higher quality infrastructure, higher institutional quality and political stability and lower level of corruption in Estonia significantly determine the differences of FDI stocks between Lithuania and Estonia, whereas labour cost, employees knowledge, legal environment, the earlier time of Estonia's accession to the euro area and zero tax rates on reinvested profits implemented by Estonia are not statistically significant variables. The main suggestions for Lithuania are to develop foreign direct investment agencies, to ensure that the employees of the Ministry of Economy and Innovation of Lithuania and members of the Seimas join the FDI attracting process, to review the expansion of flight directions. Besides revealing the key determinants that have the greatest influence on differences in foreign direct investment stocks between Lithuania and Estonia, this paper proposes a direction for future researches. The impact of new flight directions from Lithuania’s airports has not been analysed in this paper due to the short period of their application, so comprehensive analysis is required to fill this gap in academic literature. |
