Similarity of EU countries in macroeconomic, innovation, and institutional performance – The case of FDI determinants

Most countries nowadays are linked closely by trade flows, financial transactions, or mutual migration flows. As a result, their overall performances tend to converge. This paper compares 27 European countries with the aim of finding their similarities or differences based on their performance over the last decade. For consistency reasons, we included the United Kingdom and Croatia in the sample, despite not being EU members for the entire period, while Luxembourg was excluded due to data irregularities. The variables used in the analysis were chosen based on the previous literature research as well as their links to foreign direct investment (FDI) flows. The observed period of 2010–2021 was determined according to the data availability. The applied method of cluster analysis is a standard procedure when comparing countries and looking for their mutual similarities in various areas. Our three-part cluster analysis confirmed that in macroeconomic performance, the EU countries tend to follow the same trajectory, and their evolution still follows the same patterns that are closely linked to their EU entry and initial starting position. The overall results confirm that in most cases, the innovation/institutional performance reflects that of the economy’s health. Countries with weaker macroeconomic performance or those still undergoing some forms of catching-up process are also characterised by significantly lower levels of R&D expenditure or weaker institutional performance, resulting in the underperformance of this sector. This creates certain innovation and institutional gaps between “older” and “newer” members of the EU. The comparison by FDI inflows indicates the existence of the linkages not only between FDI inflows and a country’s macroeconomic performance but also between FDI and countries’ institutional and innovation characteristics.