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Mr. Anupam Basu and Mr. Krishna Srinivasan

empirical estimations. 12. To summarize, it can be argued that while a number of host-country factors bear heavily on investor sentiment and on their decision to locate affiliates abroad, some are clearly recognized as being critical. While factors, such as host country market size and cost of local labor arouse investor interest, stability, both macroeconomic and political, openness of the economy, availability of infrastructure, both human and physical, and economic reforms that remove major structural or institutional impediments to private sector activity are

Mr. Anupam Basu and Mr. Krishna Srinivasan
This paper reviews the experiences of a few countries in Sub-Saharan Africa that have succeeded in attracting fairly large amounts of foreign investment. The review indicates that sustained efforts to promote political and macroeconomic stability and implement essential structural reforms have been the key elements contributing to the success that certain countries in Africa have achieved in attracting a substantial volume of FDI. Strong leadership, which has helped promote democracy and overcome social and political strife, and a firm commitment to economic reform have been important determinants. The adoption of sound fiscal and monetary policies, supported by an appropriate exchange rate policy, and a proactive approach to removing structural impediments to private sector activity have had a positive bearing on investor sentiment. The analysis underscores the importance of relying on stability and a broad-based reform effort to encourage foreign investment in Africa.
Mr. Anupam Basu and Mr. Krishna Srinivasan
Ms. Elina Ribakova, Mr. Balázs Horváth, Mr. Dimitri G Demekas, and Mr. Yi Wu
Gravity factors explain a large part of Foreign Direct Investment (FDI) inflows in Southeastern Europe-a region not comprehensively covered before in econometric studies-but hostcountry policies also matter. Key are policies that affect relative unit labor costs, the corporate tax burden, infrastructure, and the trade regime. This paper develops the concept of potential FDI for each country, and uses its deviation from actual levels to estimate what policies can realistically be expected to achieve in terms of additional FDI. It also finds evidence that above a certain threshold, the importance of some policies for attracting FDI is distinctly different.
Ms. Elina Ribakova, Mr. Balázs Horváth, Mr. Dimitri G Demekas, and Mr. Yi Wu

distinction is often blurred. Horizontal FDI (HFDI) is market-seeking investment, aimed primarily at the domestic market in the host country, when local production is seen as a more efficient way to penetrate this market than exports from the source country. Vertical FDI (VFDI) is cost-minimizing investment, when a multinational corporation chooses the location of each link of its production chain to minimize global costs. As a result of these differences in motivation, a number of host country factors, such as market size, trade restrictions, and transport costs, can have