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FDI in the New European Neighbours of Southern Europe: a quest of institutions-based attractiveness

  • Fabry, Nathalie
  • Zeghni, Sylvain

Why the “New European Neighbours” at the South East of Europe, after more than 10 years of transition and European Neighbourhood Policy (ENP), are not sufficiently attractive for inward Foreign Direct Investment (FDI)? The experience of Central and Eastern European Countries has shown that the access to the EU membership can be positively pushed by the European Neighborhood Policy and inward-FDI. On the one hand, ENP can be a supportive framework for improving the investor’s confidence. ENP Instruments can add more coherence in technical assistance; provide more financial support for creating capacities for trade, improve infrastructures, and contribute to the institutional and private sector development. On the other hand, inward-FDI may help to achieve modernization, industrial upgrading and improve productivity by importing foreign technologies, diffusing knowledge and western best practices. Southern European Transition Countries lack of a strong convergence process to the EU Standard probably because of an unclear accession date to the EU and of the Balkan Civil War. The aim of this paper is to understand the role of institutions in shaping a strong localization advantage for FDI. The quest of reliable and safe institutions has recently emerged in the economic literature, first as a catalyst for growth and more recently as an inward-FDI attractor mainly in transition economies. Contrary to the New Institutional School, we argue that institutions are not pre-condition to FDI but the result of an interaction between host countries and foreign investors. Such an institutions-based attractiveness could help the Southern European Transition Countries to become a new frontier for FDI in the future.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1109.

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Date of creation: Apr 2006
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Handle: RePEc:pra:mprapa:1109
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  1. Yuko Kinoshita & Nauro F. Campos, 2003. "Why Does Fdi Go Where it Goes? New Evidence From the Transition Economies," IMF Working Papers 03/228, International Monetary Fund.
  2. Chakrabarti, Avik, 2001. "The Determinants of Foreign Direct Investment: Sensitivity Analyses of Cross-Country Regressions," Kyklos, Wiley Blackwell, vol. 54(1), pages 89-113.
  3. Bevan, Alan & Estrin, Saul & Meyer, Klaus, 2004. "Foreign investment location and institutional development in transition economies," International Business Review, Elsevier, vol. 13(1), pages 43-64, February.
  4. Grogan, Louise & Moers, Luc, 2001. "Growth empirics with institutional measures for transition countries," Economic Systems, Elsevier, vol. 25(4), pages 323-344, December.
  5. Holger Schmieding, 1993. "From plan to market: On the nature of the transformation crisis," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 129(2), pages 216-253, June.
  6. Rajneesh Narula & John Dunning, 2000. "Industrial Development, Globalization and Multinational Enterprises: New Realities for Developing Countries," Oxford Development Studies, Taylor & Francis Journals, vol. 28(2), pages 141-167.
  7. Paas, Tiiu, 2003. "Regional Integration and International Trade in the Context of EU Eastward Enlargement," HWWA Discussion Papers 218, Hamburg Institute of International Economics (HWWA).
  8. James D. Gwartney & Randall G. Holcombe & Robert A. Lawson, 2004. "Economic Freedom, Institutional Quality,and Cross-Country Differences in Income and Growth," Cato Journal, Cato Journal, Cato Institute, vol. 24(3), pages 205-233, Fall.
  9. Pranab Bardhan, 2005. "Institutions matter, but which ones?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(3), pages 499-532, 07.
  10. Sethi, Deepak & Guisinger, Stephen & Ford, David L. & Phelan, Steven E., 2002. "Seeking greener pastures: a theoretical and empirical investigation into the changing trend of foreign direct investment flows in response to institutional and strategic factors," International Business Review, Elsevier, vol. 11(6), pages 685-705, December.
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