The opening up process of the eastern European countries was marked by greater integration of foreign direct investment (FDI) with their western neigbouring countries.Using the single step maximum likelihood (ML) approach to stochastic frontier analysis (SFA), the location and variance determinants of FDI are estimated using the knowledge capital (KK) model framework. The findings, based on a panel of bilateral FDI stocks from 10 western to 10 eastern European countries over the 1996 to 2007 period, suggest FDI is determined by both horizontal and vertical motives while the process of liberalisation and infrastructural developments significantly reduce the variance of FDI.In using a stochastic frontier specification of the KK model, the efficiency of FDI performance is identified relative to maximum levels. The bilateral efficiency scores suggest a mixed performance, indicating scope to improve the efficiency of FDI.JEL Classification: C33, F21, P27

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The opening up process of the eastern European countries was marked by greater integration of foreign direct investment (FDI) with their western neigbouring countries.Using the single step maximum likelihood (ML) approach to stochastic frontier analysis (SFA), the location and variance determinants of FDI are estimated using the knowledge capital (KK) model framework. The findings, based on a panel of bilateral FDI stocks from 10 western to 10 eastern European countries over the 1996 to 2007 period, suggest FDI is determined by both horizontal and vertical motives while the process of liberalisation and infrastructural developments significantly reduce the variance of FDI.In using a stochastic frontier specification of the KK model, the efficiency of FDI performance is identified relative to maximum levels. The bilateral efficiency scores suggest a mixed performance, indicating scope to improve the efficiency of FDI.

This paper departs from the traditional optimisation methods used to evaluate portfolio performance. Rather, the Stochastic Frontier Analysis approach is used to econometrically determine the benchmark real estate portfolio frontier and subsequently assess the gains from diversifying real estate portfolios along regional and sectoral dimensions in the UK. Portfolio specific inefficiency measures are obtained which indicate whether a portfolio is efficiently diversified and therefore places on the benchmark frontier and if not, the degree to which performance can be improved is quantified. Portfolio specific efficiencies average at 85%-91%, indicating scope to further improve performance. Further, diversification be it on a sectoral or regional dimension, contributes to significantly lower variability in portfolio efficiencies. JEL classification: C13, G11