Cobb-Douglas production function on FDI in Southeast Europe

Apostolov, Mico Article Cobb-Douglas production function on FDI in Southeast Europe Journal of Economic Structures Provided in Cooperation with: Pan-Pacific Association of Input-Output Studies (PAPAIOS) Suggested Citation: Apostolov, Mico (2016) : Cobb-Douglas production function on FDI in Southeast Europe, Journal of Economic Structures, ISSN 2193-2409, Springer, Heidelberg, Vol. 5, Iss. 10, pp. 1-28, https://doi.org/10.1186/s40008-016-0043-x This Version is available at: https://hdl.handle.net/10419/147228 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. http://creativecommons.org/licenses/by/4.0/ Cobb–Douglas production function onFDI inSoutheast Europe Mico Apostolov* 1 Background The study is to be focused on probing effects of foreign direct investments in Southeast Europe economies. Hence, six countries have been taken as sample for this research: Albania, Bosnia and Herzegovina, Croatia, Macedonia, Serbia and Slovenia. The World Bank has conducted Enterprise Surveys on many countries using firm-level data of a representative sample of economy’s private sectors. What we are closely examining are the effects of foreign direct investments on the development of domestic firms and the overall economy. Indeed, foreign direct investments remain main concern as major source of capital directed toward enterprise restructuring. Using data of Southeast Europe will be scrutinized the interrelationships between output and set of variables that influence the FDI patterns. Further, we are interested in the way foreign direct investments shape the economy. Abstract In this research, we focus on effects of foreign direct investments in Southeast European economies. Using World Bank Microdata Library and specifically Enterprise Surveys, we take a sample of six countries. The model is based on firm-level data of a representative sample of economy’s private sectors for Albania, Bosnia and Herzegovina, Croatia, Macedonia, Serbia and Slovenia. What we are closely examining are the effects of foreign direct investments on the development of domestic firms and the overall economy. Foreign direct investment is usually defined as dominant or controlling ownership of a company in one country, by an entity based in another country. Transition economies undergo a set of structural transformations intended to develop market-based institutions through economic liberalization, where prices are set by market forces. Hence, foreign direct investments remain main concern as major source of capital utilized toward enterprise restructuring. This research is built on Cobb–Douglas production function where data are analyzed with econometric models, which as employed in this study examines the interrelationships between output and set of variables that influence foreign direct investments arrangements. Additionally, according to the results, estimates are specified on the ways foreign direct investments mold the economy. Keywords: FDI effects, Output, Southeast Europe JEL Classification: D01, F21, G11, G31, L33, O11, P31 Open Access © 2016 Apostolov. This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http:// creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made. RESEARCH Apostolov Economic Structures (2016) 5:10 DOI 10.1186/s40008-016-0043-x *Correspondence: mico.apost[email protected] UGD, Krste Misirkov b.b., P.O. Box 201, 2000 Stip, Macedonia Page 2 of 28 Apostolov Economic Structures (2016) 5:10 The basic hypothesis is that output depends on set of variables and is possibly driven by foreign ownership influx. In order to test this hypothesis, it is used standard growth accounting approach, i.e., Cobb–Douglas production function, and more specifically two different ways are employed to see the effects. The first path is a regression used to see outcomes for every specific country separately. On the other hand, the second course of research examines the relationship of output to set of variables for the whole region of Southeast Europe. The academic significance of the topic is in determining the factors that influence foreign direct investments, as well as the way FDI spillovers contribute toward the development of Southeast Europe transition economies. In Sects.2 and 3, we give the theoretical and literature framework and possible impact on the growth of the host country. Further, in Sect.4 we form the analytical framework comprised of two main elements: (a) sample selection and data and (b) model and econometrics. Section5 encompasses the results and effects, where we give simulations and answers to the research question. Finally, Sect.5 tries to raise certain academic discussions and concludes. 2 Theoretical andliterature framework There are many studies that try to explain why multinational enterprises prefer foreign direct investment as instrument of setting up operations overseas, opposed to export or license. The most compelling arguments that come close to explication are those that relate the coexistence of proprietary knowledge and market failures in protecting that knowledge, where the firm through internalization of transactions guards its advances in technology, management know-how and brand (Caves 2007; Markusen 1995). Further, there is well-developed literature that examines the benefits of foreign direct investment on host-country economy. Transfer of technology to domestic companies, knowledge transfer, increased labor force productivity and decreased unemployment, and increased exports due to rectified competitive characteristics of companies can be counted as most noteworthy changes in a domestic economy due to increased foreign direct investment presence. The financial aspects on domestic balance of payments that fallow foreign direct investment include financing external current account deficits—a result of decreased capital spending and increased exports, non-debt-creating upshots, as well as increased income on behalf of overall capital and product transactions and, finally, increased economic activity. When there is foreign direct investment in greenfield or brownfield plant, the firm that invests has anticipation of achieving a higher rate of return. Such expectations usually are a result of technological advantage and international foothold gained in global operations, strengthening the competitive advantage over the competition in sector or market. On the other hand, a domestic firm can have benefit from external influx of investment only in the case of indirect technology transfer in an environment where the international entrant is not willing voluntarily to give away its advantage. Therefore, present literature recognizes four channels through which the host might boost its productivity when interacting with foreign direct investment: (1) imitation, (2) skills acquisition, (3) competition and (4) exports. Host-country characteristics determine the intensity of spillovers where most dominant are those related to location, which define the decision on where to invest (Wheeler and Mody 1992; Page 3 of 28 Apostolov Economic Structures (2016) 5:10 Brainard 1997). Another issue is the absorptive capacity of the host country to adopt new technology in order to harness productivity gains (Sánchez-Sellero etal. 2014). However, foreign direct investments have been received with mixed blessing. Negative outcomes have been frequently attributed to the fact that foreign firms reduce the productivity of domestic firms through competition effects (Aitken and Harrison 1999; Konings 2001). Without a doubt, internationally established firms retain lower marginal costs because of firm-specific advantage, which permits them to attract demand away from domestic firms, pressing them to reduce production and move up their average cost curve. The presence of highly competitive international players on weak domestic markets often leads to market abuse followed by reluctant political pressures. Further, large investors more often than not coax concessions from host-country governments on top of transfer pricing used to maximize tax obligations, hence encouraging volatile balance of payment flows. There are other potential negative outcomes related to number of countries and most often tied to horizontal spillovers (Blomström and Sjöholm 1999; Monastiriotis and Alegria 2011; Acemoglu etal. 2010; Keller and Yeaple 2009; Aitken and Harrison 1999; Castellani and Zanfei 2007; Djankov and Hoekman 2000). Indeed, it can be said that overall, the literature has settled on a broad consensus that the benefits of FDI tend to considerably outweigh its costs for host countries and companies. There are good surveys on the general effects of FDI (Borensztein etal. 1998; Lim 2001), diffusion of innovation and productivity effects (Javorcik 2004; Smarzynska Javorcik 2004; Javorcik and Spatareanu 2011) and theoretical summaries of policy implications related to sizeable capital inflows (Lane etal. 2002). The evidence related to horizontal effects is weaker; nonetheless, there are studies that confirm the presence of positive spillovers in aggregate (for UK (Liu etal. 2000; Haskel etal. 2007), for Ireland (Görg and Strobl 2003a, b), for USA (Keller and Yeaple 2009), for number of transition countries (Damijan etal. 2013). Transition economies have evident that capital need because of continuous enterprise restructuring and potential benefits of fresh capital, mainly due to inflow of FDI, is critically important. As such economies have highly educated labor force; another important dimension is transfer of specific knowledge, knowhow and technology that FDIs bring to the domestic economy and influence local firms’ competitiveness. Non-debt-creating agenda is highly imposed in restricted capital conditions, and FDIs are used as life support of fresh capital (Frankel and Rose 1996; Apostolov 2013b). Effects can be caused in number of ways. Host country can improve its domestic base by using processes purchased from large international companies (licenses, franchises, etc.), or local companies can obtain such knowledge by reverse engineering. Additionally, foreign firms employ local stuff on management and labor positions, which gain experience and process knowledge that will eventually be transferred to domestic companies and start-ups. And, finally, the change in competitive structure pushes domestic companies to adapt and employ all necessary business systems in order to stay in the game (Glass and Saggi 2002). 2.1 Policy environment Economic and enterprise restructuring in Central Europe attributed significantly toward transition theory and practice, and especially to the fact that large amounts of foreign Page 4 of 28 Apostolov Economic Structures (2016) 5:10 direct investment, at early stage, generate positive economic and political change. Thus, as such model was derived; it became much desired and, in fact, advised for implementation in Southeast Europe. So, significant inflows of foreign direct investment were attracted due to policy changes and agile marketing tactics of every country in Southeast Europe; as a consequence, as the competition between them increases, it is likely to catalyze higher value-added inflows. The policy environment in Southeast Europe has improved over the years, while all counties have successfully tackled inflation, developed noteworthy private sector through deregulation and privatization. Other important changes fallowed with improved business environment and slimmed-down public administration. Increased competitive characteristics meant reduced overall tax rates, and as a trade-off, they instigated foreign direct investments to balance current account deficits. Certainly, such policies set foreign direct investments on pedestal, as all other policies must be in sync with the aim of attracting fresh capital in form of FDI. On the other hand, there are numerous weaknesses in number of areas. Feeble spots lay in corruption, law enforcement, property rights protection, i.e., generally in governance. In economic terms, major flows surfaced during the euro-area recession as most important trading partner of Southeast European countries are those of the European Union. So, these economies suffered imported chain reaction on their already weak bases. Nonetheless, Southeast European countries have accepted, more or less, a general approach to shaping the investment environment (Fig.1) (Liebscher 2005). Such policies gave beneficial effects in determining FDI flows. 2.2 Timeline ofeffects offoreign investment ondomestic firms It has been found that the effects of foreign direct investment are dynamic (Merlevede etal. 2014). In fact, host economy benefits from presence of majority foreign-owned companies, and it depends on the time of presence of the foreign entrant into domestic market, hence the longer—the better. The literature gives general guidelines on negative (horizontal) effects, but it is usually explained on short-term bases and damaged competitive characteristics of domestic companies. When only the impact of entry is analyzed, the results show that there are only modest outcomes. However, most that benefit from immediate foreign entry are local suppliers, and thus within first few years of entry, local suppliers have considerable growth because of enhanced business relations with the majority foreign-owned companies. As time goes by, the effects become lighter. •unifying FDI registration and approval procedures with those for domestic firms; •allowing acquisition of real estate by foreign investors for FDI purposes; •minimizing FDI-related requirements on statistical reporting, work and residence permits; •eliminating discrimination in access to government procurement contracts; and •removing obstacles to FDI in financial and professional services. Fig. 1 General characteristics on investment reform in Southeast Europe Page 5 of 28 Apostolov Economic Structures (2016) 5:10 Nonetheless, post-entry effects last longer and it is due to increased competitive characteristics of domestic cooperants and newly formed start-ups (Xu and Sheng 2012). Overall impression is that there is strong positive effect from foreign direct investment, and if it is to be harnessed, it needs time. Effects on local suppliers are defined by the time of entry and are immediate and positive. In the next few years, the effect fades and it is attributed to horizontal spillovers. The time after that or longer presence of foreign direct investments is followed by increased strength of domestic companies that adopt to changing market conditions (Fig.2). 2.3 Efficiency effects When it comes to establishing efficiency effects from foreign direct investment, the literature gives two general outcomes: (1) horizontal or inter-industry effects and (2) vertical or intra-industry effects. 2.3.1 Horizontal/inter‑industry effects The inter-industry effects are usually negative effects from foreign direct investment that disturb the market and force domestic companies out of business due to their dominant position. Hence, important studies claiming negative productivity effects on domestic companies are (Aitken and Harrison 1999) (study on Venezuela) (Kathuria 2000) (study on India). Foreign internationals operating on local markets have tendency to keep technology leaks using patents and high wages to critical employees. FDIs normally function in well-established surroundings where encircle themselves only with trusted suppliers, thus preventing potential domestic players from entering into their business (Kokko 1994). Horizontal effects are crucial when it comes to building dominant position while precluding competition on domestic sector markets and draining domestic market of quality labor. This increases costs for local companies making them likely to exit the market (Aitken and Harrison 1999). Effect Timeline since entry Current literature Number of years the FDI is active on domestic market Fig. 2 Timeline of effects of foreign investment on domestic firms (Merlevede et al. 2014) Page 6 of 28 Apostolov Economic Structures (2016) 5:10 Negative results can be caused also vertically when the market is distorted and foreign direct investment externalities influence supply chains of domestic companies, tightening productivity gains and profit levels, which is translated in loss of competitive advantage to domestic enterprises (Beugelsdijk etal. 2008). 2.3.2 Vertical/intra‑industry effects Intra-industry or vertical effects are upstream and downstream productivity gains for domestic companies. The case of positive effects consists of increased business standards applied by suppliers in the beginning phase and increased competitive characteristics of domestic companies overall. Thus far, the literature gives proof of significant technology transfer to the affiliates generating positive spillovers to domestic firms or/ and such effects are limited to certain industries (Aitken and Harrison 1999; Haddad and Harrison 1993). It is estimated that these effects can be quite substantial (Smarzynska Javorcik 2004; Barrios etal. 2011) (study on UK) (Haskel etal. 2007) (study on US) (Keller and Yeaple 2009). Important effects can be noticed in production design practices as well as know-how transfer that eventually impact managerial practices and overall corporate governance of local enterprises (Tan and Meyer 2010; Filatotchev etal. 2007; Vera-Cruz and Dutrénit 2005). The interaction with foreign managers and top practices increase the level of available knowledge to all local employees. Due time, it makes local managers more apt to work and transfer such techniques further downstream, strengthening the supply chain of the present foreign investment and supplier domestic companies. Such local companies are later capable of undertaking more competitive approach to the same or other markets increasing productivity, allowing them access to foreign markets (Girma etal. 2008; La Porta and Shleifer 2014). The most noticeable direct form of positive effects can be found in the cooperation with domestic suppliers. However, indirectly there is increased domestic productivity, economies of scale of domestic companies, availability of technological goods and imitation and employment (Blalock and Gertler 2008). In other words, technology spillovers from foreign-owned firms tend to take place more frequently when the absorptive capacity of firms and the social capabilities of the host country are both high. Foreign direct investments and presence of foreign capital can be considered positive even if there are no spillovers. Such peculiarity is characteristic for economies in transition, where foreign capital has crucial role in overall enterprise restructuring (Blanchard 1998; Djankov and Murrell 2002; Apostolov 2013a). 2.4 Absorptive capacity It is evident that not all firms are likely to gain from foreign presence and equally share knowledge/technology spillovers. The degree of benefit assimilation will depend on the absorptive capacity for adapting knowledge. The basic idea is that effects will depend on complexity the technology introduced by the foreign entrant and the technology gap between domestic and foreign-owned firms (Kokko 1994; Girma 2005b). Further, an extension of that idea is the hypothesis that domestic firms can only benefit if the technology gap is not too broad (Blomström etal. 1994; Glass and Saggi 1998). It is required Page 7 of 28 Apostolov Economic Structures (2016) 5:10 some level of absorptive capacity so that domestic firms can benefit from productivity effects generated by foreign direct investments (Girma 2005a, Fu 2008). 3 Growth ofthe host country The basic reason for examining spillovers from foreign-owned to domestically owned firms is to grasp the involvement of inward foreign direct investment to host-country economic growth. Foreign firms generally have higher productivity than local firms, but the evidence on spillovers to local firms’ productivity is mixed. It seems that it depends on host-country policies and the technological absorptive capacity of domestic firms. Increased productivity of foreign companies is expected to have positive influence on domestic firms towing them to another level of development. However, if such higher productivity of foreign-owned firms is achieved at the expense of lower productivity of domestic firms, the effect on aggregate output (growth) is to be negative (competition argument). Growth effects can exist even devoid of spillovers, and usually they occur as a consequence of the operations of the foreign firms themselves; nonetheless, such possibility is hardly ever investigated and usually implied in studies exploring the impact of the entrance/growth of foreign firms on the output/growth of a host country. As far as evidence is concerned, there is proof of positive impact of inward foreign direct investments in the case of developing economies, where it is noted that the main obstacle is not the physical capital but rather the gap in knowledge (Blomström and Kokko 1998). In such cases, much of the driving force of the host economy is the human or organizational capital of foreign firms, and thus, for more vigorous growth a country has to implement policies that give foreign firms an incentive to close the technological gap while making profit on the way, as well as by crafting favorable business environment that offers an ample return to foreign firms, letting them convey ideas from the rest of the world while employing domestic resources. The effects of foreign direct investment usually have been studied through comprehensive cross-country studies that take the rate of growth of real gross domestic product (or gross domestic product per capita) and tie it to the stock or inflow of foreign direct investments. By and large, the results of these studies point to the fact that the size of foreign direct investments flows, relative to gross domestic product, is not linked in any reliable aspect to rates of growth. Nevertheless, the majority of studies find that among some subsets of the host economy, foreign direct investments do have strong positive influence on economic growth. While analyzing developing economies, there are proven positive links between foreign direct investment and growth (a study of developing economies for the period 1960–1985) (Girma etal. 2001). Anyhow, when a study on developing economies was done separating the higher-income from lower-income countries, the results gave different turns, i.e., foreign direct investment encouraged growth only in the higher-income countries (a study on 69 developing countries from 1970–1989 found when foreign direct investment interacted with the level of education shaping the labor force, and thus being a considerable positive influence) (Borensztein etal. 1998). The same relationship was confirmed in later research (Aitken etal. 1997). There are diverse explanations regarding growth effects of inward foreign direct investments one of which that has most ground is that the effect depends on introduced policies of the host country. Therefore, the efficiency of foreign direct investment could be increased by an export Page 8 of 28 Apostolov Economic Structures (2016) 5:10 promotion policy or decreased by an import substitution policy (Balasubramanyam etal. 1996). Another rationalization related to effects of foreign direct investments is the existence and extent of local financial markets, which is taken as essential determinant shaping of the way growth might transpire (Alfaro etal. 2004). The basic argument in absence or weakness of local financial markets is that domestic firms are devastated by uneasy access to finance and thus are unable to take benefit of the variation of know-how that is disposable to them introduced by the foreign firms (Dosi and Soete 1983). Other studies on both developing and developed economies find significant effect of foreign direct investment inflows; however, more important fact is that none of the variables found in most of the studies exactly determine the effect of foreign direct investment on growth. On the other hand, when the approach contains a narrower group of countries, especially transition economies, it can be observed that foreign direct investment is crucial explanatory variable for growth (Hubert and Pain 2001). It must be said that the literature still does not have conclusive stands on the effects of foreign direct investments on economic growth, as it is also the case with studies on wage and productivity spillovers. The impact of foreign direct investment in promoting growth of host-country exports/ linkages to the outside world is clearer. The major role of foreign direct investment in the transformation of host economies from being exporters of raw materials and foods to being exporters of manufactured goods, and in some cases relatively high-tech products, is too evident in some cases. Much of the impact is from the transfer of knowledge and of ways of fitting into worldwide production networks, not visible in standard productivity measurements. Thus, most of the studies find positive effects for periods of time or some groups of countries, but it cannot be claimed that these are common effects. Indeed, there are countries, periods and sectors where foreign direct investments have significantly positive influence and relation to economic growth; however, it is always conditioned by specific factors detailed in the analysis in question. 4 Analytical framework 4.1 Sample selection anddata The data used in this research are from Enterprise Surveys data sets specified by the World Bank Microdata Library. These surveys are firm-level representative samples that gather information from the economy’s private sector. Further, the data sets include a wide variety of business environment topics including firm characteristics, gender participation, access to finance, annual sales, costs of inputs/labor, workforce composition, bribery, licensing, infrastructure, trade, crime, competition, capacity utilization, land and permits, taxation, informality, business–government relations, innovation and technology, and performance measures. The data sets can be individual and country specific, as well as aggregated throughout the years in order to give relevant information to the public. Hence, the questions are addressed to business owners and top managers, normally 1200–1800 interviews in larger economies, 360 interviews in medium-sized economies and 150 interviews in smaller economies. The surveys are derived through two instruments: the Manufacturing Questionnaire and the Services Questionnaire.1 1 Enterprise Surveys—World Bank Microdata Library, available at: (http://www.enterprisesurveys.org/). Page 15 of 28 Apostolov Economic Structures (2016) 5:10 Table 4 Tests onCroatia andMacedonia Standard errors are in parentheses Significance level: ***p<0.01; **p<0.05; *p<0.1 Indnt variable Dependent variable Output Croatia Macedonia [1] [2] [3] [4] [5] [1] [2] [3] [4] [5] FDI −0.0112729 0.0130713 −0.0029945 −0.0073595 0.0199348 −0.217406 0.0077164 0.0426126 [0.0301352] [0.033949] [0.0141584] [0.0137953] [0.0914588]** [0.1391686] [0.0247525] [0.0950594] FTW 2.901084 2.813014 0.7270706 2.843796 −2.879743 0.1675782 1.971317 [0.919504]*** [0.873429]*** [0.33431]** [0.466066]*** [0.426370]*** [0.371802] [0.530498]*** CU 0.1133218 0.1207993 0.0963405 0.2571246 0.1841887 −0.1217007 −0.1190696 −0.0990504 0.0455404 −0.0238404 [0.1126597] [0.1089484] [0.1311446]* [0.0539277]*** [0.0618641]*** [0.054703]** [0.0521867]** [0.0887919] [0.0696652] [0.0631092] AEG −0.2623711 −0.2515806 −0.0370962 −0.3290766 −0.3304862 −0.4437646 −0.3388933 [0.1276298]* [0.12217]** [0.1232867] [0.1307336]** [0.1277157]** [0.2104827]* [0.1553065]** ALPG 0.0375986 0.0368362 0.126771 −0.1189805 −0.1106986 −0.198015 −0.1510707 [0.0487375] [0.04785] [0.0462731]** [0.0825608] [0.0716933] [0.1326559] [0.0786294]* PTSExD −0.0060098 −0.0107254 0.0004302 0.018774 −0.0032564 0.0474847 0.0437079 −0.001059 −0.0130952 [0.0354395] [0.0325469] [0.0412328]* [0.0244438] [0.0256485] [0.0296345] [0.0235148]* [0.046443] [0.028422] PTSExI −0.4914096 −0.4961292 −0.2512877 −0.3873539 −0.3703826 0.2105108 0.2107629 0.0795414 −0.0487474 [0.1682758]*** [0.1648904]*** [0.174906] [0.1184475]*** [0.1144477]*** [0.0538104]*** [0.0526205]*** [0.0802786] [0.064191] Constant −13.31484 −13.63137 −3.996946 −15.98033 −12.87565 19.90322 19.65876 13.28152 −0.9839942 11.97123 [8.679077] [8.487851] [9.511054] [4.198977]*** [4.292102]*** [3.810679]*** [3.742807]*** [6.075264]** [5.144553] [4.352135]** R-squared 0.5594 0.5568 0.3767 0.4494 0.4988 0.8086 0.8082 0.4693 0.044 0.6536 Adj R-sqrd 0.4309 0.4505 0.2271 0.4044 0.4466 0.7448 0.7559 0.3246 0.02 0.5783 Obs 480 420 420 300 360 464 406 406 384 384 Time period 2002–2013 2002–2013 Page 16 of 28 Apostolov Economic Structures (2016) 5:10 Table 5 Tests onSerbia andSlovenia Standard errors are in parentheses Significance level: ***p<0.01; **p<0.05; *p<0.1 Indnt variable Dependent variable Output Serbia Slovenia [1] [2] [3] [4] [5] [1] [2] [3] [4] [5] FDI 0.0872523 0.0463447 −0.0106245 0.084326 −0.013082 −0.0273761 0.0130055 0.0046342 [0.022588]*** [0.020901]** [0.0259282] [0.02627]*** [0.014735] [0.0165807] [0.0358174] [0.0193945] FTW −1.348849 −0.3129612 0.2827722 −1.454585 −1.169018 −1.282121 −0.5979759 [0.446932]*** [0.4494059] [0.5640654] [0.50670]*** [0.391816]*** [0.368457]*** [0.4903518] CU −0.0053013 −0.1105883 −0.0730646 0.2911474 −0.0846266 −0.0317231 −0.0464205 −0.075677 −0.0736572 −0.2079752 [0.0697471] [0.0809953] [0.0806983] [0.08637]*** [0.0712049] [0.070127] [0.0677641] [0.0815826] [0.1223075] [0.08436]** AEG −0.0571991 −0.0161928 −0.0439874 −0.0013306 −0.6372299 −0.6069466 −0.7148405 −0.4704578 [0.1087931] [0.1360979] [0.1257341] [0.123254] [0.156665]*** [0.152052]*** [0.183829]*** [0.21470]** ALPG −0.5663892 −0.4602196 −0.5719828 −0.5106869 0.1397358 0.1419685 0.0742142 0.0532456 [0.072876]*** [0.08483]*** [0.084265]*** [0.07471]*** [0.0672081]* [0.0667857]** [0.0755818] [0.0917073] PTSExD 0.1008651 0.0949276 0.1107823 0.0718653 0.0826193 0.0818311 0.0529496 0.1110206 [0.0307538]*** [0.0386086]** [0.0353679]*** [0.0638152] [0.0215668]*** [0.0214281]*** [0.0227716]* [0.0512832]** PTSExI −0.2126677 −0.137492 −0.3891441 −0.7412186 −0.3861092 −0.3474616 −0.3990607 −0.6382333 [0.2469361] [0.3094278] [0.2774965] [0.4418439]* [0.115373]*** [0.106248]*** [0.137186]*** [0.3636737]* Constant 8.11988 11.13252 8.380457 −19.23921 14.09833 2.072079 3.285566 2.865243 4.235163 14.42283 [4.097979]* [5.056915]** [4.738895]** [5.884539]*** [4.051163]*** [5.384585] [5.179113] [6.399351] [9.500267] [6.679479]** R-squared 0.8545 0.7601 0.7969 0.3301 0.7616 0.9424 0.9175 0.9175 0.1724 0.8761 Adj R-sqrd 0.8102 0.7002 0.7461 0.2588 0.7139 0.9242 0.8915 0.8915 0.0955 0.8451 Obs 496 434 434 372 372 432 378 378 270 324 Time period 2002–2013 2002–2013 Page 17 of 28 Apostolov Economic Structures (2016) 5:10 can be noticed that these two are in sync; nevertheless, foreign direct investment is more resilient to crises and always positive, driving the economy out of problems. There are some interesting results on Macedonia (Table4). Foreign ownership has proved to be positive influence on the overall output (p<0.05); and the constant in most of the models is positive, significant and fairly high. We find significance with mixed sign for number of permanent full-time workers and negative inclination for capacity utilization, which points to the fact that the economy has capacities for employment that have not been reached in full yet and are inducing labor-intensive investments seen through reduced capacity utilization which eventually pressures domestic exports (La Porta and 0 2 4 6 8 10 12 2005 2006 2007 2008 2009 2010 2011 2012 2013 Albania Foreign direct investment, net inflows (% of GDP) GDP growth (annual %) 2 per. Mov. Avg. (Foreign direct investment, net inflows (% of GDP)) 2 per. Mov. Avg. (GDP growth (annual %)) -4 -2 0 2 4 6 8 10 12 14 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Bosnia and Herzegovina Foreign direct investment, net inflows (% of GDP) GDP growth (annual %) 2 per. Mov. Avg. (Foreign direct investment, net inflows (% of GDP)) 2 per. Mov. Avg. (GDP growth (annual %)) Fig. 3 GDP versus FDI on Albania and Bosnia and Herzegovina -10 -8 -6 -4 -2 0 2 4 6 8 10 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Croaa -10 -8 -6 -4 -2 0 2 4 6 8 10 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Macedonia Foreign direct investment, net inflows (% of GDP) GDP growth (annual %) 2 per. Mov. Avg. (Foreign direct investment, net inflows (% of GDP)) 2 per. Mov. Avg. (GDP growth (annual %)) Foreign direct investment, net inflows (% of GDP) GDP growth (annual %) 2 per. Mov. Avg. (Foreign direct investment, net inflows (% of GDP)) 2 per. Mov. Avg. (GDP growth (annual %)) Fig. 4 GDP versus FDI on Croatia and Macedonia Page 18 of 28 Apostolov Economic Structures (2016) 5:10 Shleifer 2014). On the other hand, proportion of total sales that are exported directly are with positive tendency which might as well be result of foreign ownership influx (Apostolov 2011). Indeed, this is consistent with the research on foreign direct investment links to countries’ exports (Girma etal. 2008). Figure4 shows that gross domestic product and foreign direct investments are closely tied. Without a doubt, it is evident that the influence of foreign direct investments is significant and contributes greatly overtaking the main indicator of the domestic economy. Serbia is also a good example of foreign direct investment influence on domestic output (Table5). There is positive significance related to foreign ownership (p<0.01), which gives good grounds of the claim that foreign direct investment is major contribution to development of domestic economy. Further, it is also found that proportion of total sales that are exported directly are positive, that is, such occurrence is an effect of increased incursion of capital due to foreign direct investments (Djankov and Murrell 2002; Hanousek etal. 2011). Nevertheless, pessimistic outcomes were found for number of permanent full-time workers and annual labor productivity growth, falling in line with labor market developments in all other analyzed countries. These outcomes merit further explanation as it is the brightest case in this set of countries that has shown most impact of foreign ownership on output levels. Firstly, the inflows of foreign direct investment in this particular case have mostly been placed the tertiary sector of (banking, insurance, telecommunications and retail trade) and privatization of state-owned enterprises (Popov 2004, 2010). Secondly, there has been increase in number of number of export-oriented projects by foreign investors (most notable example is the investment of new plant by Fiat, SpA while shifting its production from Italy) (Trifunović etal. 2009) that have advanced domestic direct exports. Thirdly, unemployment is still lagging as in most of analyzed cases; nonetheless, increased investment and capital allocation will eventually reduce unemployment and improve the productivity structure of the labor market (Djankov and Hoekman 2000; Haskel etal. 2007). Finally, this country has had -5 0 5 10 15 20 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Serbia Foreign direct investment, net inflows (% of GDP) GDP growth (annual %) 2 per. Mov. Avg. (Foreign direct investment, net inflows (% of GDP)) 2 per. Mov. Avg. (GDP growth (annual %)) -10 -8 -6 -4 -2 0 2 4 6 8 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Slovenia Foreign direct investment, net inflows (% of GDP) GDP growth (annual %) 2 per. Mov. Avg. (Foreign direct investment, net inflows (% of GDP)) 2 per. Mov. Avg. (GDP growth (annual %)) Fig. 5 GDP versus FDI on Serbia and Slovenia Page 19 of 28 Apostolov Economic Structures (2016) 5:10 improvements in innovation and technology infrastructure owning to significant transfer of technology brought by foreign-owned firms (Cabrilo etal. 2009; Komnenic and Pokrajčić 2012), improved competition on domestic market and business environment. The relationship between gross domestic product and foreign direct investments (Fig.5) follows the developments regionally. This means that these two are related and as output falls, foreign ownership is less inclined to invest in the country and, vice versa, foreign direct investments are general driver of domestic business opportunities. Also, the level of investment is quite high as there are unused economies of scale and possibilities for privatization of natural monopolies under way in this economy. When analyzed Slovenia (Table5), it is evident that this economy has fairly better quality of labor expressed through positive and increased annual labor productivity growth (p<0.1 and p<0.05 depending on the model). Contrary, we see that there is fall of number of permanent full-time workers and negative annual employment growth which is mainly because of European debt crisis which hit Slovenia harshly and distorted the factor markets (Jaklič etal. 2014; Damijan etal. 2013). When investigated the exports, it is shown that there is positive significance in incline of proportion of total sales that are exported directly and it is owned mainly on capital-intensive sectors and foreign ownership, as the negative slope of proportion of total sales that are exported indirectly denotes less inclusion of domestic business in the output equation. Movements of gross domestic product and foreign direct investments (Fig.5) are tied. The interesting thing about this case is that gross domestic product growth is found to be higher than the incursion of foreign ownership, and it is good indicator of endogenous path to growth. In the case of Slovenia, it can be said that it is far clearer that gross domestic product pulls foreign direct investment either way. As far as the results on the fixed effects model are concerned, they are given in Table6 and Figs.6, 7, 8 and 9. To examine the basic hypothesis in this approach, it is used a whole set of countries, analyzed as a panel. The second model examines the relationship of output to set of variables for the whole region of Southeast Europe. When analyzed the presence of foreign ownership scrutinized through proportion of private foreign ownership in a firm which is a percentage of the firm owned by foreign individuals, companies or organizations, we got mixed results that are unfortunately not conclusive. However, Fig.9 shows positive inclinations for all variables used in this study. Also Fig.8 indicates a potential positive relationship between output and foreign ownership and the incursion of foreign direct investments for the whole region. The results on the number of permanent full-time workers or number of permanent full-time workers employed in the current fiscal year are also mixed with slight difference that there are positive outcomes and significance depending on the model and employed variables. It is evident that there is increase in the number of full-time workers (Figs.8, 9) which is in relation to claims of current literature (Zhao 1998; Bailey and Driffield 2007; Aizenman 2003; Javorcik 2014). We have found strong evidence for two variables: (1) capacity utilization (based on comparison of the current output with the maximum output possible using the current inputs by a firm) and (2) annual employment growth (the change in full-time employment reported in the current fiscal year from a previous period). Both of these two variables give negative results (Table6) and hence can be claimed with certainly that there is Page 20 of 28 Apostolov Economic Structures (2016) 5:10 Table 6 Fixed effects model Standard errors are in parentheses Significance level: ***p<0.01; **p<0.05; *p<0.1 Fix Dependent variable Output Southeast Europe Indnt variable [1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] FDI −0.0025186 0.0020108 −0.0110823 0.0030446 0.0140875 −0.0026993 −0.0035577 0.0253069 0.0110657 0.013391 0.0215645 [0.0185959] [0.0185396] [0.0190523] [0.0193804] [0.0169875] [0.0185108] [0.0185897] [0.0101]*** [0.010776] [0.0108015] [0.0106]** FTW −0.0070049 −0.0071961 −0.0083784 −0.0095971 −0.00538 −0.0072064 −0.0059532 0.0088754 0.009528 [0.0045705] [0.004331]* [0.004650]* [0.00472]** [0.0040055] [0.0044419] [0.0044774] [0.001]*** [0.002]*** CU −0.1823795 −0.1827015 −0.2360568 −0.2408343 −0.1672891 −0.1810976 −0.1630706 [0.0464]*** [0.0462]*** [0.0476]*** [0.0457]*** [0.0425]*** [0.0458]*** [0.0431]*** AEG −0.2934778 −0.292641 −0.0861415 −0.4070789 −0.2063153 −0.2931256 −0.3021361 [0.0778]*** [0.0773]*** [0.0672747] [0.0685]*** [0.0709]*** [0.0775]*** [0.0775]*** ALPG 0.0746292 0.0743919 0.0727112 0.073285 0.0544287 0.0734137 0.0648448 [0.038264]* [0.038091]* [0.039145]* [0.03657]** [0.0396104] [0.037646]* [0.037290]* PTSExD −0.0035179 −0.0036347 −0.0112026 0.0052394 −0.0020048 −0.0035562 −0.0015383 0.0059683 0.0170307 [0.017667] [0.0175849] [0.0182471] [0.0173624] [0.0184658] [0.0164794] [0.0175947] [0.0155412] [0.01444] PTSExI 0.0795601 0.0800386 0.0750253 −0.0504178 0.1060659 0.0113122 0.0781495 −0.2384351 [0.0709214] [0.0705881] [0.0739938] [0.0625385] [0.0737819] [0.0672009] [0.0703277] [0.0601]*** Constant 14.40777 14.42 17.52435 1.979766 17.36959 13.25821 14.27802 13.29658 1.430312 0.6539102 1.264725 1.203486 [3.2546]*** [3.2421]*** [3.3629]*** [0.4631]*** [3.302]*** [2.981]*** [3.177]*** [3.103]*** [0.2174]*** [0.2490]*** [0.326]*** [0.2901]** R-sq 0.2863 0.2862 0.1913 0.2179 0.2143 0.222 0.2861 0.2799 0.831 0.799 0.1246 0.225 Obs 2728 2387 2387 2387 2387 2387 2387 2387 682 1023 1364 1023 Time period 2002–2013 Page 21 of 28 Apostolov Economic Structures (2016) 5:10 space for improvement of unused capacities of the firms, i.e., they have not yet reached their full potential. On the other hand, annual employment growth is lagging, which is consequence of historical postulates and disorderly politics encompassing this region. For annual labor productivity growth (annualized growth in labor productivity where labor productivity is real sales (using GDP deflators) divided by full-time permanent workers), there is a significant and positive result (Table6). Indeed, Fig.9 shows good relation between annual labor productivity and foreign presence. Therefore, a policy recommendation would be that governments should aim for maximization of productivity benefits associated with foreign direct investments by assisting and encouraging local firms in becoming suppliers to foreign affiliates. (Javorcik 2014). The variables used for proportion of total sales that are exported directly (sales exported directly as percentage of total sales) and proportion of total sales that are exported indirectly (sales exported indirectly as percentage of total sales) did not gave conclusive results. On the one hand, sales that are exported directly have good outlook when compared to output and foreign direct investments (Figs.8, 9). On the other hand, sales that are exported indirectly have troublesome relationship with output and foreign direct investments, which is related to the gap between entry of foreign firm and engagement of domestic firms with foreign presence and overall absorptive capacity (Zhang etal. 2010; Girma 2005a). -10 -5 0 5 10-10 -5 0 5 10 2000 2005 2010 20152000 2005 2010 20152000 2005 2010 2015 1 2 3 45 6 gdp year Graphs by country -10 -5 0 5 10 gdp 2000200520102015 year country = 1country = 2 country = 3country = 4 country = 5country = 6 510 15 510 15 2000 2005 2010 20152000 2005 2010 20152000 2005 2010 2015 1 2 3 4 5 6 foreign ownership year Graphs by country 0 5 10 15 foreign ownership 2000 2005 2010 2015 year country = 1country = 2 country = 3country = 4 country = 5country = 6 Fig. 6 Exploring panel data. N.B. countries: Albania (1), Bosnia and Herzegovina (2), Croatia (3), Macedonia (4), Serbia (5), Slovenia (6) Page 22 of 28 Apostolov Economic Structures (2016) 5:10 020 40 60 80 100 1 2 3 4 5 6 country foreign ownershipfdi_mean 2 3 4 5 6 7 1 2 3 4 5 6 country logftw logftw_mean 50 60 70 80 90 1 2 3 4 5 6 country cu cu_mean -5 0 5 10 15 20 1 2 3 4 5 6 country aeg aeg_mean -20 -10 010 20 30 1 2 3 4 5 6 country alpg alpg_mean 020 40 60 1 2 3 4 5 6 country ptsexd ptsexd_mean 0510 15 20 25 1 2 3 4 5 6 country ptsexi ptsexi_mean Fig. 7 Fixed effects: heterogeneity across countries Page 23 of 28 Apostolov Economic Structures (2016) 5:10 11 1 1 1 1 1 1 1 1 11 1 1 11 1 1 1 1 1 11 1 1 1 1 1 1 1 11 1 1 1 2 2 22 2 2 2 2 2 2 2 2 2 2 2 22 2 22 2 2 2 2 2 22 2 22 2 2 2 22 2 2 2 2 2 2 3 33 3 3 3 3 33 3 3 3 3 33 3 3 3 3 33 3 33 3 3 33 3 3 33 33 3 33 333 3 3 3 3 3 33 3 3 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 44 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 44 5 5 5 5 5 5 5 5 5 55 5 5 5 5 5 5 5 5 5 5 5 5 5 55 5 55 55 5 5 5 5 5 5 5 5 5 5 5 5 5 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 66 6 66 6 6 6 6 6 6 6 66 6 6 6 6 -10 -5 0 5 10 020 40 60 80 100 foreign ownership gdpFitted values 11 1 1 1 1 1 1 1 11 1 1 1 1 1 1 11 11 11 11 2 2 22 2 22 2 2 22 2 2 2 2 2 2 22 2 2 2 2 2 2 2 22 2 2 22 2 2 2 2 2 2 22 2 2 2 22 2 2 2 2 2 2 2 2 3 333 3 3 3 3 3 3 3 3 333 33 3 33 3 3 33 3 3 3 33 3 3 33 33 3 3 3 3 33 3 3 3 3 3 3 3 3 34 4 4 4 4 4 44 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 44 4 4 44 4 4 4 4 4 4 4 4 4 4 4 4 4 44 4 4 4 5 5 5 5 5 5 5 5 55 5 5 5 5 5 55 55 5 5 5 5 5 55 5 5 5 5 5 5 55 5 5 5 5 5 5 5 5 5 55 5 5 5 5 5 5 5 5 6 6 6 6 6 6 6 6 6 66 666 6 6 6 6 6 6 6 6 6 66 6 6 66 6 66 6 66 6 6 6 6 6 6 66 6 6 6 6 -10 -5 0 5 10 2 3 4 5 6 7 logftw gdp Fitted values 1 1 11 111 1 1 11 11 1 1 1 1 1 1 1 1 11 1 1 1 1 1 1 1 1 1 22 2 22 2 22 22 2 2 2 22 2 22 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 22 2 2 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 33 33 3 3 33 3 3 33 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 33 33 3 33 3 3 4 4 44 44 4 4 444 4 4 4 4 4 4 4 4 4 4 44 4 4 4 4 4 4 4 4 4 44 4 4 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 55 5 5 5 5 5 55 5 5 5 5 5 5 5 55 5 5 5 5 5 5 555 5 5 5 5 5 66 6 6 6 6 6 6 6 6 6 66 6 6 66 6 66 6 6 66 66 6 6 6 6 6 6 6 6 6 66 6 66 6 6 -10 -5 0510 50 60 70 80 90 cu gdp Fitted values 1 11 111 1 1 11 11 11 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 22 222 2 222 2 2 2 22 2 222 2 2 2 3 333 3 3 33 3 3 3 3 3 3 33 3 3 3 3 3 3 3 33 3 3 33 3 344 4 4 44 4 4 44 4 44 44 44 4 4 4 4 4 4 4 4 44 5 55 5 55 5 5 5 5 55 5 55 5 5 55 55 5 5 5 55 5 5 5 5 6 6 66 6 6 6 66 66 6 66 6 6 6 6 6 666 6 -10 -5 0 5 10 -5 0 510 15 20 aeg gdpFitted values 1 1 11 1 1 111 1 1 1 11 1 1 1 1 2 2 2 22 222 2 222 22 2 2 2 22 2 2 2 2 2 2 2 3 3 33 3 3 3 3 333 3 3 3 33 3 3 33 33 3 3 33 3 3 3 33 3 4 4 4 4 4 4 4 444 44 4 44 4 4 4 4 444 44 4 5 55 5 5 5 5 5 55 5 5 5 55 5 55 5 55 5 5 5 55 5 5 5 5 6 6 6 6 6 6 666 6 6 66 666 6 6 6 6 6 66 6 -10 -5 0 5 10 -20 -10 0 10 20 30 alpg gdpFitted values 1 1 1 1 1 1 1 1 1 1 11 1 1 11 1 1 11 1 1 1 11 1 1 1 11 1 1 11 1 1 1 1 1 1 1 1 1 2 2 22 2 2 2 2 2 2 2 2 22 2 2 2 2 2 2 222 2 2 2 2 2 2 2 22 2 2 2 22 2 2 2 2 2 22 2 2 2 2 2 2 2 2 2 2 2 3 33 3 3 3 3 3 333 3 3 333 3 333 3 3 3 3 3 3 3 3 3 3 3 33 3 3 3 3 3 33 3 3 3 3 3 3 3 3 4 4 4 4 4 4 4 4 4 4 4 4 4 44 4 4 4 4 44 4 4 44 4 444 4 4 4 4 4 4 4 44 4 44 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 5 55 5 5 5 55 5 55 5 5 5 55 5 5 5 55 5 5 5 5 5 5 5 5 5 55 5 5 5 5 55 5 66 6 6 6 6 6 6 66 6 6 6 6 6 6 6 6 6 6 6 66 6 6 66 6 66 6 6 6 6 6 6 66 6 6 6 6 6 6 6 66 6 6 -10 -5 0 5 10 020 40 60 ptsexd gdpFitted values 11 1 1 1 1 1 11 11 1 1 1 11 1 1 1 11 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 22 2 22 2 2 2 2 2 2 2 2 2 2 22 2 2 22 2 2 2 22 2 2 2 2 2 2 3 3 33 3 3 33 3 33 3 3 3 3 3 3 33 3 3 33 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 4 4 4 4 4 4 44 4 4 4 44 4 4 4 4 4 4 4 44 4 44 4 4 4 4 4 4 4 4 4 4444 44 4 4 4 4 4 4 4 4 4 4 44 5 5 5 5 5 5 5 5 5 5 55 5 5 55 5 55 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 55 5 66 6 6 6 66 6 6 6 6 6 6 6 6 6 6 66 6 6 66 6 6 6 66 6 6 6 6 6 6 6 6 6 6 66 6 66 6 6 -10 -5 0510 0 5 10 15 20 25 ptsexi gdp Fitted values Fig. 8 Fitted values related to output Page 24 of 28 Apostolov Economic Structures (2016) 5:10 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 11 1 1 1 2 2 2 2 2 2 2 2 2 2 22 2 2 22 2 2 2 22 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 23 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 33 3 3 3 4 4 4 4 4 4 4 4 4 44 4 4 4 5 5 55 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 55 55 5 5 5 5 5 5 5 5 5 5 55 5 5 55 5 5 5 6 6 6 6 66 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 020 40 60 80 10 0 -10 -5 0 5 10 gdp fdiFitted values 1 1 1 1 1 1 1 1 1 1 11 1 1 1 11 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 22 2 2 2 2 2 2 2 2 2 2 2 2 22 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 22 2 2 2 2 2 2 2 2 22 3 3 3 3 33 3 3 333 3 33 3 3 3 3 3 3 3 3 3 3 3 3 3 3 33 3 3 3 3 3 3 3 33 3 3 3 3 3 3 3 3 3 3 3 3 33 33 3 3 3 4 4 4 4 44 4 44 4 4 4 4 444 44 4 4 44 4 444 4 4 44 44 4 5 5 5 5 5 55 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 55 5 5 5 5 66 6 6 6 6 66 6 6 6 6 6 66 66 6 6 6 6 6 6 6 6 6 66 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 020 40 60 80 10 0 020040060080 0 ftw fdiFitted values 1 11 1 1 1 1 1 1 11 1 1 1 1 1 1 1 11 1 1 1 11 1 1 1 1 1 1 1 1 1 1 22 2 2 2 2 2 2 2 2 2 2 2 2 2 22 2 2 2 22 2 2 2 22 2 2 2 2 2 2 2 22 22 2 2 2 2 22 2 2 22 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 33 3 3 3 33 3 33 3 3 33 3 3 3 3 3 3 3 3 33 3 3 3 4 4 444 4 44 4 44 4 4 4 4 4 444 4 44 4 4 4 4 44 44 444 4 4 44 4 44 44 5 5 5 55 5 5 5 5 5 55 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 55 5 5 5 5 5 5 5 5 5 5 5 55 5 5 55 5 5 5 666 666 66 6 6 66 66 6 66 6 6 6 6 6 6 66 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 020 40 60 80 100 50 60 70 80 90 cu fdiFitted values 1 1 11 1 1 1 1 1 1 1 1 1 1 1 1 11 1 1 1 1 1 1 1 12 2 2 2222 2 2 2 2 2 2 22 2 2 22 2 2 2 2 2 2 222 2 2 2 2 22 3 3 33 3 3333 3 3 3 33 3 3 3 3 3 3 3 3 3 3 3 33 3 3 3 3 3 3 3 3 33 4 44 4 444 4 4 4 44 444 4 4 4 4 44 4 44 444 4 5 5 5 5 55 5 5 5 5 5 5 5 5 5 5 5 55 5 5 5 55 555 555 5 5 6 66 66 6 6 6 6 6 66 6 6 6 6 66 6 6 66 6 6 6 6 6 6 6 6 020 40 60 80 100 -5 0 5 10 15 20 aeg fdiFitted values 1 1 1 11 1 1 1 1 1 11 1 1 1 1 1 1 12 2 2 22 22 2 2 2 2 2 2 2 222 2 222 2 22 2 22 2 22 3 3 3 3 33 3 333 3 3 3 3 33 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 33 3 3 44 4 4 4 44 4 4 44 4 4 44 44 4 4 44 4 44 44 5 55 55 5 5 5 5 5 5 55 5 55 5 5 5 5 55 55 5 5555 5 555 5 5 66 666 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 020 40 60 80 100 -20 -10 0 10 20 30 alpg fdiFitted values 1 1 1 1 1 1 1 11 1 1 11 1 1 1 11 1 1 1 1 1 1 1 1 1 11 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 22 2 2 2 2 2 2 22 2 2 2 2 2 22 2 2 2 2 2 2 2 2 2 22 2 2 2 2 2 2 2 2 2 22 2 2 2 2 22 2 2 22 3 3 3 3 3 3 3 3 333 3 3 33 33 3 3 3 3 3 3 3 3 3 3 3 33 3 3 3 3 3 3 3 3 33 3 3 33 3 3 3 3 3 3 33 33 3 333 3 4 4 4 44 44 44 4 4 4 444 444 4 4 4 4 4444 44 4 4444 44 44 4 4 44 4 4 44 44 444 5 5 55 5 5 55 5 5 5 5 55 5 5 5 5 5 5 5 55 55 55 5 5 5 5 5 5 5 55 5 5 5 55 5 5 5 5 5 55 55 5 5 5 5 5 5 5 5 66 6 6 66 6 6 6 6 6 6 66 6 6 6 6 6 6 6 6 6 6 6 666 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 020 40 60 80 100 020 40 60 ptsexd fdiFitted values 1 1 1 1 1 1 1 1 1 1 1 11 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 11 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 22 2 2 22 22 2 2 2 2 2 2 2 2 22 2 2 2 2 2 2 2 2 2 2 2 2 22 22 2 2 2 2 2 2 2 22 2 2 2 2 2 2 22 2 2 22 3 3 3 3 3 3 3 33 33 3 3333 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 33 3 3 33 3 3 3 3 3 33 33 3 333 3 4 4 44 44 44 4 44 444 44 444 4 4 4 4 44 44 44 4 4 4 4 4 4 4 44 4 444 4 4 44 4 4 44 4 5 5 5 5 55 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 55 5 55 5 5 5 55 5 5 5 5 5 5 5 5 5 5 55 5 5 5 5 5 5 5 5 5 5 666 6 66 66 6 6 6 6 6 66 66 66 6 6 6 6 6 6 6 66 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 020 40 60 80 100 0 5 10 15 20 25 ptsexi fdiFitted values Fig. 9 Fitted values related to foreign ownership