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Effective Tool for Improving the Central and Eastern European Countries Attractiveness for Foreign Direct Investment: Reducing Corruption

Author Affiliations

  • 1The Bucharest University of Economic Studies, Faculty of International Business and Economics, ROMANIA

Int. Res. J. Social Sci., Volume 2, Issue (7), Pages 1-7, July,14 (2013)

Abstract

Improving institutions’ quality is one of the main tool at hand for governments in order to attract foreign direct investments (FDI). The present paper draws on the location decision for FDI. The analysis starts from identifying the major obstacles for doing business in five Central and Eastern European (CEE) countries as compared with the main FDI inflows recipients in the European Union (EU). Corruption appears to be one of the main problems faced by the businessmen in the CEE countries, while it is poorly detected among the obstacles for the businesses in Western European (WE) countries. Therefore, we will identify if corruption is also problematic for foreign investors. For this aim, an empirical model of the determinants of inward FDI stock is derived. Our main result is that corruption has a strong negative impact on FDI. Hence, for CEE countries, reducing corruption level is a suitable strategy for improving business environment and attracting foreign investments.

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