Authors: Dimitrios Giakoulas, Konstantina Louloudi, Constantina Kottaridi, Pantelis Pantelidis

Title: Foreign Direct Investment and the role of institutional framework: Evidence from Greek Outward FDI

Abstract

Despite the increasing interest on the impact of institutions as FDI determinants, to date, hardly any studies have addressed the incentives of capital flight due to ineffective institutional framework from developed countries. Most existing studies investigating the impact of institutions, mainly focus on developing countries.

This article evaluates the strategic motivation for outward FDI made by Greek firms, during the period 2003-2018, using a unique database with micro data of Greek MNEs. We focus on Greece, a developed economy characterized by high taxation, low level of competitiveness and structural and institutional failures. After the fall of the centrally planned economies of Central and Eastern European Countries, Greek MNEs turned into leading investors in the region and gradually expanded into other EU countries. We investigate their motives focusing on the role of institutional quality of the host countries.

Our analysis is based on the eclectic paradigm of Dunning and Lundan (2008), which includes policy-induced effects generated by policy intervention and institutions. We combine ownership and location advantages placing particular emphasis on specific institutional indexes of the host countries taken from the International Country Risk Guide (ICRG) database. We find that institutions matter along with some traditional FDI location determinants and specific firm characteristics.