Article

 

DETERMINANTS OF FOREIGN DIRECT INVESTMENT IN THE EU: THE CASE OF THE CZECH REPUBLIC AND GREECE  (p.31-63)

by

Dimitris Groumpos, University of Patras

George Economakis, University of Patras

Keywords : Foreign direct investment, EU, Czech Republic, Greece, economic complexity

JEL classification : F14, F15, F21, F23

Abstract

This paper attempts to explain divergences in inward foreign direct investment (FDI) in the sphere of production among members of the European Union (EU). Specifically, it investigates the determinants of FDI in the case of the Czech Republic and Greece and provides insights into the reasons for their different performance in attracting FDI. The empirical part includes an autoregressive distributed lag (ARDL) approach in order to determine long-run and/or short-run relationships between the examined variables. The main findings of the study show that market size and international trade competitiveness seem to play an important role in attracting FDI in both countries. In the case of Greece, FDI attractiveness seems to be strongly related to the level of its economic complexity. Labour costs seem to play a small role in the Greek economy while their role in the Czech economy seems to be insignificant. Another interesting finding is that FDI in the case of the Czech Republic seems to serve as a substitute to foreign intra-industry trade, a finding which does not hold for FDI attracted to Greece.