Foreign Direct Investments and their Institutional Quality Factors in Romania and Bulgaria

The economic literature has focused on the traditional factors impacting foreign direct investments (such as fiscal factors), while the non-traditional factors (such as institutional factors) have been less analyzed. The aim of this paper is to present an econometric analysis using Least Squares Met...

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Bibliographic Details
Published in:Romanian journal of political science 2016-06, Vol.16 (1), p.136-163
Main Authors: Radulescu, Magdalena, Banica, Logica, Druică, Elena
Format: Article
Language:English
Subjects:
Bulgaria
Corruption
Economic aspects
Economic growth
Economic reform
Economy
Emerging markets
Environmental aspects
Foreign direct investment
Foreign investment
Foreign subsidiaries
Infrastructure
Labor force
National Economy
Political aspects
Politics / Political Sciences
Property rights
Public infrastructure
Public institutions
Quality
Romania
Social aspects
Studies
Tax rates
Taxation
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Summary:The economic literature has focused on the traditional factors impacting foreign direct investments (such as fiscal factors), while the non-traditional factors (such as institutional factors) have been less analyzed. The aim of this paper is to present an econometric analysis using Least Squares Method for emphasizing the political institutional factors, economic institutional factors and the quality of labor force factors impacting on the foreign direct investments attracted in Bulgaria and Romania. We used yearly data series from 1999 to 2014, provided by the World Bank. These two countries display a very friendly climate (low income corporate tax), but they attracted large amounts of foreign direct investments only for a short period of time during the mid2000s’. Our results show that, in Romania, a high-skilled labor-force has attracted foreign direct investments in the economic sectors that have contributed to an intensive economic growth, but the low quality of the infrastructure has negatively impacted foreign direct investments inflows. Political and fiscal instability, mainly during preelection periods, has also attracted foreign direct investments. In Bulgaria, lax laws and weak governance effectiveness have attracted foreign investors that avoided bureaucracy and numerous business regulations. In Bulgaria, foreign direct investments seek mainly cheap and low-skilled labor force in the sectors that contributed to an extensive economic growth. Romania should focus on improving its infrastructure, while Bulgaria should focus on diminishing corruption.
ISSN:1582-456X
2068-7613