Abstract
The Doing Business indicators published by the World Bank serve as a proxy for assessing the quality of institutions and the business environment. In recent years, Doing Business scores or rankings have been used to evaluate choices affecting foreign direct investment decisions. The study purpose is to examine the extent to which the quality of institutions and the business environment, as reflected in the Doing Business indicators, is associated with higher foreign direct investment inflows in European Union countries. The paper uses data on member country performance based on selected indicators, the Corruption Perception Index, and data on work stoppages and strikes. The latter is used to capture the importance of the labour market environment and political stability. Panel data cover the period 2005–2020 for most European Union member countries. The results suggest that the quality of business and institutional environments is an important factor in attracting foreign direct investment inflows. These results vary considerably depending on the countries chosen and have important policy implications. Specifically, governments should put emphasis not only on the general functioning of the economy, but also on the improvement of institutional quality to attract foreign direct investment.
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Data is available upon request.
Notes
FDI is based on the residence of the direct investor and not on the nationality or citizenship of the direct investor.
Each of the indicators contains a number of subcomponents providing more detailed information on, for example, the time and cost of implementing the given regulation. These detailed indicators are aggregated to produce an aggregate score or ranking. Our study used scores.
The choice of the sample involves combining two different methodologies, i.e. that of the 2020 and 2016 reports or of the 2020 and 2014 reports. This was done in approximation applying the most recent methodology’s growth rates to the older.
Malta, Luxemburg and Cyprus were excluded due to missing observations in certain data series.
Arellano and Bond (1991) refer to this drawback.
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Bardakas, I., Doulos, D. & Zombanakis, G.A. Determinants of FDI Inflows as Seen Through the Doing Business Indicators Lens: Evidence from the EU. Atl Econ J 51, 243–257 (2023). https://doi.org/10.1007/s11293-023-09785-6
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DOI: https://doi.org/10.1007/s11293-023-09785-6