Location Decisions of Multinational Enterprises: The Experiences of Poland, Bulgaria and Romania

In this paper, we present a simple theoretical framework in order to analyze the decision of a multinational firm to locate either in Poland, Bulgaria, or Romania, conditional on entering the Eastern European market. We also explore empirically whether foreign investors are driven by market seeking or efficiency seeking motives when locating in one of the three countries. The results of a conditional logit model suggest that both local demand and unit labor costs are important in driving multinational location decisions. The results also show the importance of other factors, such as agglomeration forces, labor market flexibility and the parent’s nationality. For instance, while US investors are more likely to locate in markets where the demand for their products is larger, German investors seem to be attracted by low-cost locations.