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Using a dataset detailing FDI flows from market economies to transition economies we examine two aspects FDI inflow determinants given insufficient prior attention: labour costs and institutional development.We find low unit labour costs and aggregate institutional development enhance FDI receipts.Examining disaggregated development indicators identifies specific institutions that positively influence FDI: private sector development, banking sector reform, price, foreign exchange and trade liberalisation, and legal development.Conversely we find non-bank financial sector development and competition policy do not enhance FDI.Our analysis highlights that Russian FDI receipts have suffered from a gap between extensiveness and effectiveness of legal reform.
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