Structural determinants of FDI inflows and the case of Greece

Foreign direct investment (FDI) has grown strongly as a major form of international capital transfer over the past decades. Countries all over the world compete for such investment flows, as they are considered less volatile than portfolio investment and are expected to spur long-term growth. The attraction of FDI flows depends on a number of host country attributes, including macroeconomic, geographical and institutional variables. Additionally, the extent to which FDI inflows contribute to domestic productivity and long-term growth is conditional on characteristics that shape a country’s absorptive capacity. Relying on the relevant empirical literature and most recent data, this study aims to describe the trends in a wide range of variables that determine the direction of FDI flows as well as the potential of host economies to enjoy the knowledge and technology spillover effects. Special emphasis is given to the case of the Greek economy, with the trajectory of key variables explaining the overall lackluste performance as well as the upward and downward trends in the 21st century. In conclusion, the data underline the need for the continuation of reforms in product, labour and financial markets, with a view to keeping up the positive momentum of the last two years. Moreover, the state of the Greek economy’s absorptive capacity is concomitant with the generation of substantial positive externalities from FDI inflows.