Dimensions of distance also affect differently exports and the FDI: as distance increases so do transport cost; total foreign sales fall with geographical distance but it is more costly for exports than the FDI [15]. For the FDI, “soft” barriers (language, culture and institutions), seem to be very important [15]. The explanation lies in the fact that local presence requires deep levels of involvement and experience in the local cultures and institutions. Furthermore, the need for knowledge of the local language is greater when operating a plant in a foreign market than when the goods are exported [15].
Mateev (2009) found when studying trade and manufacturing in central and southeastern Europe that the gravity factors (distance, population, and GDP) and non-gravity, or transition specific, factors (risk, labor costs, and corruption) can explain, to a large extent, the amount of FDI flows into transition economies [16]. Also of note for the CLMV countries are Maatev’s (2009) findings that the FDI flows to the transition countries were determined by the same macroeconomic and transition specific factors as for the other countries and not by the timing of their integration [16]. The lesson from the European integration would suggest that the single market that is created generates gains through comparative advantage and develops new horizontal trade opportunities that are based on economies of scale [5].