Abstract:
With the use of gravity approach this paper investigates economic factors affecting the foreign direct investment movement between countries, constructs the optimal model with the inclusion of highly significant factors. Derived model is tested by the method of Poisson Pseudomaximal Likelihood towards the panel data. Estimating the derived model by this method, it was shown that the most important factors influencing foreign direct investment attraction, are the following: GDPs of investing and host countries and the distance between them (as the main gravity variables), index of economic freedom (containing 10 different factors reflecting economic situation in the country), average level of wages in the country, common language and common border.
