Journal of Comparative Economics 32 (2004) 775–787 www.elsevier.com/locate/jce The determinants of foreign direct investment into European transition economies Alan A. Bevan a , Saul Estrin b,c,* a European Bank for Reconstruction and Development b London Business School, UK c Centre for New and Emerging Markets, London Business School, Regent’s Park, London NW1 4SA, UK Received 22 December 2002; revised 24 August 2004 Bevan, Alan A., and Estrin, Saul—The determinants of foreign direct investment into European transition economies Using a panel dataset of bilateral flows of foreign direct investment (FDI), we study the determi- nants of FDI from Western countries, mainly in the European Union (EU), to Central and Eastern European ones. We find the most important influences to be unit labor costs, gravity factors, market size, and proximity. Interestingly, host country risk proves not to be a significant determinant. Our empirical work also indicates that announcements about EU Accession proposals have an impact on FDI for the future member countries. Journal of Comparative Economics 32 (4) (2004) 775–787. European Bank for Reconstruction and Development; London Business School, UK; Centre for New and Emerging Markets, London Business School, Regent’s Park, London NW1 4SA, UK.  2004 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights re- served. JEL classification: F2; P27; C33 Keywords: Foreign direct investment; EU accession; Transition economies * Corresponding author. E-mail addresses: bevana@ebrd.com (A.A. Bevan), sestrin@london.edu (S. Estrin). 0147-5967/$ – see front matter  2004 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved. doi:10.1016/j.jce.2004.08.006