F21 - International Investment; Long-term Capital MovementsReturn

Particularly in depressed regions, politicians often use unemployment as the main argument for investment incentives provided to MNCs. This paper applies Dunning’s OLI Framework to the relationship between FDI and employment, assuming that political negotiation between MNCs and the host government might have a zero or negative effect on employment. Since the last letter of OLI, internalisation, suggests that MNCs optimise all production factors available to them and “subsidies” provided to MNCs by governments decrease the relative price of capital, MNCs may use more labour-saving techniques. Two hypotheses are tested using the dynamic panel model (DPD) and Granger causality tests for 193 countries from 1985–2019, where the first is supported with no strong relationship between the variables.
Implications for Central European audience: The paper results suggest the importance of a critical debate on the efficiency of investment incentives. This paper is among the first trying to disentangle the rather complex issue of FDI and employment on a theoretical and econometric level.

Foreign Direct Investments (FDI) has been considered an important source of economic growth and technological development in transition economies. The previous empirical literature has shown that FDI promote economic growth via complementary effects on domestic investments, increases in productivity and overall economic efficiency, giving rise to an increasing interest in understanding the key determinants of FDI. Apart from traditional FDI determinants, favourable tax policy has been considered an important factor influencing MNCs’ location decisions. The goal of this paper is to investigate the impact of corporate income tax on FDI in the context of less advanced transition economies and to analyse whether the tax effect is conditional on the level of economic development. A small number of studies exist analysing the importance of tax policy regime in attracting FDI covering South-East European countries. In this study, we rely on panel gravity econometric framework and examine the impact of tax policy on FDI using bilateral FDI flows between 8 home and 8 South East Europe host countries in the period 2000–2018. We estimate the regression using Prais-Winsten correlated panels corrected standard errors PSCE method to obtain robust estimates of individual effects in the presence of heteroscedasticity and serial correlation. The seven SEE host countries included in the sample are considered of similar economic structures and institutional transformation, which seems important in analysing tax policy effectiveness and minimising biases associated with econometric modelling of FDI determinants. Finally, we study this relationship in an integrated framework considering traditional gravity forces as well as a number of additional FDI determinants, including institutional factors. We show that, although tax policy seems an important determinant of FDI, its effects seem to be conditional on the level of technological development. Given these findings, reducing corporate income tax may be considered an effective tool in promoting FDI, which seems to be of particular importance for less developed transition economies. The results are robust to different model specifications and consideration of endogeneity.
Implications for Central European audience: The direct implications of this research for business policymakers in CEE include the need to revise and optimise the levels of corporate income tax and incorporate this specific policy instrument in FDI strategies. In particular, the results of this research indicate that tax cuts have been more effective in attracting FDI in countries that are at a lower level of technological sophistication. The managers could seek to size the investment opportunity related to possible further corporate income tax cuts in the group of least developed CEE amid the economic rationale for tax policy competition among these countries.

The article deals with China’s outward direct investment (ODI) in Europe. The ODI has been on the rise and is unique in the sense that its development is much faster than in any other developing country. We investigate the determinants of Chinese ODI in ten countries of Central and Eastern Europe in the time span of 2005 and 2018. Using panel data analysis, the regression model incorporates both traditional macroeconomic variables as well as selected institutional variables, trying to test which of those work best at explaining the Chinese investment activity in the countries of interest. The quality of the institutional framework is represented by EBRD indicators, which seem to be more suitable for transition economies. Findings generally suggest that Chinese multinational enterprises do not access Central and Eastern European countries primarily for market-seeking reasons. However, the fact of being a member of the EU helps Chinese ODI since the membership is used as a sort of “backdoor” to the large European markets. Still, Chinese ODI is less likely associated with a sound institutional environment of a host country, as the opposite appears to be true. These findings, therefore, support the hypothesis that access to the single EU market and R&D spending are more important determinants of the Chinese ODI than almost any other factors.
Implications for Central European audience: The article explores the main drivers of Chinese foreign direct investment in the CEE region while it employs the most relevant theoretical framework, including several recently developed theories. The quantitative analysis then thoroughly explores the weight and sign of selected drivers using recent data and questions some of the conventionally accepted surmises about motivations of Chinese investment activity in the CEE region. This is an important topic given the ongoing debates about China’s influence in the region as well as about the intensity and general value added of its investment activity.

Foreign direct investment (FDI) plays a crucial role in the growth and development of transitional economies and especially in countries where domestic capital is insufficient to meet the investment needs of the economy. Albania is a country applying for E.U. integration, so the country's central policies in recent years have brought about a liberalized economic framework and improved conditions for business development, attracting highly sought after FDI. This paper will provide an analysis of FDI in Albania and make a comparative analysis with the Western Balkan (W.B.) countries. The focus of the paper will also be on analyzing some of the critical elements that make these countries attractive to FDI, such as: analyzing the sectoral distribution of FDI stocks, the impact that inflows have had on the development of domestic economies, in creating jobs. FDI flows even though they have been in an upward trend, have not yet reached the desired expectations levels. W.B. countries have some very potential sectors to increase in the future and to be more attractive for FDI, such as tourism, service, transport, agriculture, industry. FDI had a positive impact on Albania's economy and in other Balkan countries. However, the region still needs to make many improvements in implementing institutional reforms, building and operating democratic institutions, improving the infrastructure. All countries need to collaborate to enhance political instability, resolve conflicts, and to focus on improvements and policies to attract potential investors.
Implications for a Central European audience: This paper aims to contribute to increasing the knowledge about the opportunities and potential sectors to invest in the W.B. area. The article may make a positive contribution to the Central European businesses generally and especially to firms that are interested in investing their capital in W.B countries or scholars who currently study the effects of FDI in developing countries. There is an analysis of how public policies can further increase the attraction of FDIs, which is beneficial for public officials aspiring to absorb foreign investments in their area of oversight. The optimal geographical position of Albania and W.B. countries has played an essential role in attracting foreign investments for neighbouring countries and especially European Union countries. Central European countries such as Hungary, Austria, and Switzerland are leaders or significant investors in the region. The distance between host and recipient countries have been a dominant factor of FDI, as well as cultural and linguistic resemblances.

In recent years, some of China's leading firms have made headlines with their European expansion, by either opening new facilities or by acquiring or merging with significant enterprises in Europe. The goal of this paper is to contribute to the existing literature by examining Chinese enterprises expanding into Switzerland. The study also allows some conclusions for Chinese companies entering Central and Eastern Europe. We analyze via interviews the motivations of Chinese companies to expand into Switzerland as well as their behavior and the impediments in their internationalization process. Our findings show that Chinese companies fail to take advantage of certain benefits of western economies (such as open information and stable rule of law). To move forward efficiently, they should develop competence in dealing systematically with readily available market information, building professional networks that recognize a separation between business life and personal life, and managing their Chinese and foreign employees in the foreign cultural environment.