【正文】 om the most important institutional aspects by the principalponent method, and these variables were used in a panel data analysis to determine the significance of institutions for FDI and to take into account also some other important variables like labour cost and location. The importance of various institutional aspects was examined by a correlation analysis between FDI and ponents of the Heritage Foundation Index. Despite its simplicity, correlation is noheless illustrative, since it exposes those areas of institutional environment that have the highest correlations with FDI. It is reasonable to believe that these are also the institutional aspects that represent an indicator of ‘‘FDI climate’’ or ‘‘FDI friendliness’’ for foreign investors. The analysis covered a span of 8 years (1995–2020) in 24 transition economies. The most important factors turned out to be regulation, property rights protection, and the presence of a black market. The area of capital flows and foreign investment (in this area the Heritage Foundation subindex evaluates various restrictions regarding capital transfers) was fourth, followed by wages and prices. The stability of the rules of the game and the ability to enforce these rules to protect property rights are expected to be the most important for foreign investors. Unless property rights are protected in the economy and fear of nationalization is excluded, foreign capital will go to a different economy. What is interesting is the relatively low ranking of the area of capital mobility. It would be reasonable to expect that potential investors consider the development of capital markets. Correlation analysis indicates that foreign investors care mostly about the legal aspects of the economy. But this does not mean that other factors are not important. To include other factors in the analysis, together with institutional quality,we created a new variable (fdifact), using all the five areas with highest correlations with FDI (property rights protection, regulation quality, FDI environment, the extent of the black market, and wages and prices determination). The new variable was formed by principalponent analysis and was intended to present the overall institutional quality relevant for the FDI climate in a country. There are several other factors that affect FDI flows beside institutional quality: location, labour costs, and human capital, etc. To extract the impact of the overall institutional quality on FDI, a panel data analysis must be run. Our test was performed on the 6 Heritage Foundation data set covering again a span of 8 years (1995– 2020) for 24 transitional countries. The panel data analysis was based on a generaltospecific approach, suggested by Berg et al. (1999). Despite a vast literature on factors that might be important for FDI inflow, transition is an unprecedented process and there are hardly any models on FDI in transition considered a number of variables, suggested by empirical researches:2 market size (proxied by GDP per capita, population), labour cost, trade barriers and openness (proxied by the institutional variable for foreign trade), growth rate, trade deficit (as percent in GDP), exchange rate, taxes (proxied by institutional variable government and taxes), initial conditions proxy (initial GDP, share of industry, change in the share of industry), institutional variable (overall institutional quality), dummies for economies that might serve as a base for further progress towards the East (like Hungary, Slovenia, and Poland), dummies for groups, dummies for the prevailing type of privatization,3 and regional dummies.. Maximum likelihood estimation was used. Since the objection of countryspecific effects and the use of fixed effects might be