Economic freedom and asymmetric crisis effects on FDI inflows: The case of four South European economies

Fotini Economou

Research in International Business and Finance, 2019, vol. 49, issue C, 114-126

Abstract: This paper examines the impact of several traditional foreign direct investment (FDI) determinants alongside the impact of economic freedom on FDI inflows in four South European economies (Greece; Italy; Portugal; Spain) for the 1996–2017 period. Results suggest a positive impact of market size and gross capital formation, as well as a negative impact of unit labor costs on FDI inflows. Economic freedom is found to bear a consistently positive impact on FDI inflows. Testing for the impact of the individual economic freedom components, I find that protection of property rights, government integrity, monetary freedom, and financial freedom all have a robustly positive effect on FDI. The paper further investigates the impact of the Eurozone crisis on FDI and documents an asymmetric economic freedom effect within versus outside the crisis that is more pronounced outside the crisis. The findings showcase the institutional factors policy-makers should focus on in order to attract FDI inflows, particularly during economic crises.

Keywords: Foreign direct investment inflows; Economic freedom; Economic crisis (search for similar items in EconPapers)
JEL-codes: C33 F21 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:49:y:2019:i:c:p:114-126

DOI: 10.1016/j.ribaf.2019.02.011

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