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Do Institutions Still Matter for Investors? Impact of Institutional Determinants on Investment Infl ows into European Economies

Author

Listed:
  • Victoria Donu

    (Faculty of Social Sciences, Institute of Economic Studies, Charles University in Prague, Czech Republic)

  • Martin Janíčko

    (Faculty of Economics, University of Economics in Prague, Czech Republic)

Abstract

Institutional quality is commonly cited as a reason that investment infl ows still vary across European countries, despite their economic stabilization following the tumultuous years in the early 1990s. This article tests empirically whether institutional quality has any bearing on the level of investment infl ows into selected groups of European countries. The role of institutions is assessed using Economic Freedom indices from the Heritage Foundation. We construct a panel dataset from 2000–2015 for 35 European countries to apply a fixed-effects and generalized method of moments model framework in the regression benchmark with the metrics from the Heritage Foundation. Results show that although institutional quality has some impact on the level of investment, it is less significant than expected and far less than suggested by the existing theoretical literature. Macroeconomic fundamentals matter more than do institutional factors.

Suggested Citation

  • Victoria Donu & Martin Janíčko, 2018. "Do Institutions Still Matter for Investors? Impact of Institutional Determinants on Investment Infl ows into European Economies," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 68(2), pages 245-270, June.
    • Handle: RePEc:aka:aoecon:v:68:y:2018:i:2:p:245-270
    Note: Some parts of the article were already published in Acta Oeconomica Pragensia (2015). In comparison with the previous version, the current article contains number of changes, updates and extensions. The authors would like to thank the anonymous reviewers for their valuable comments and suggestions that greatly contributed to improving the article.
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    Cited by:

    1. Barbora Abu Dayeh & Martin Janíčko, 2021. "Determinants of Chinese Foreign Direct Investment in Central and Eastern Europe," Central European Business Review, Prague University of Economics and Business, vol. 2021(3), pages 19-36.

    More about this item

    Keywords

    foreign direct investment; institutional determinants; fundamentals; European economies; panel data;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government

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