FOREIGN DIRECT INVESTMENT IN THE EUROZONE COUNTRIES: STOCHASTICITY OF THE FINANCIAL INFLUENCE FACTORS

Authors

  • Н. Telnova Donetsk State University of Management
  • O. Kolodiziev Simon Kuznets Kharkiv National University of Economics
  • M. Kuzheliev University of State Fiscal Service of Ukraine
  • I. Krupka Ivan Franko National University of Lviv
  • N. Boiko Simon Kuznets Kharkiv National University of Economics

DOI:

https://doi.org/10.18371/fcaptp.v4i35.221826

Keywords:

foreign direct investment, factor, finance, rank correlation, analysis

Abstract

Globalization and liberalization processes observed in the capital market draw special attention to the international flows of investment resources. The study of the foreign investors’ interests and areas of their implementation in the Eurozone countries becomes particularly topical considering the fact that each of these countries has its own significant features in the structural framework of the economy as well as in the incentive policy formation. To prove the hypothesis of the stochastic nature specific to the influence of financial factors on the FDI attraction, a grouping of the Eurozone countries took place based on their attractiveness to foreign investors retrospectively and in 2018. For this purpose, the study relied on the cluster analysis tools, namely the Ward and Euclidean distance methods, which allowed defining four clusters of the Eurozone countries: the Netherlands represents the first cluster as a country that remains attractive to foreign investors and has a high FDI flow to GDP; the second one includes Ireland and Luxembourg (these countries were attractive to non-resident investors, but they have been showing outflows of foreign investment recently); the third cluster comprises Austria, the Slovak Republic, Portugal, Spain, Belgium, and Estonia (with a moderate FDI accumulation in the economy and a relatively stable FDI flow); Finland, Germany, France, Slovenia, Greece, and Italy refer to the fourth one as countries that are least sensitive to foreign investment and do not focus their policies on its aggressive attraction. Kendall tau rank correlation coefficients and Spearman correlation coefficients have served as a tool for determining the relationship between the foreign direct investment flow and macro- (the inflation, government debt rates, long-term interest rates referred to government bonds, the current account balance level in GDP and the corporate tax rates) and micro-level (the profitability of financial and non-financial corporations and the level of their debt as a risk factor) factors by country groups. Their analysis revealed that it is inexpedient to unify the investment policy of financial incentives for different countries because they have a differentiated structural framework of the economy; their investors are interested in different aspects of decision-making and place different expectations on the macroeconomic policies of host countries. The above refutes certain well-established theoretical views on the determined relationship between the investment activity and the financial factors influencing it.

Author Biographies

Н. Telnova, Donetsk State University of Management

Doctor of Economics, Associate Professor, Professor of the Department of Finance, Accounting and Taxation

O. Kolodiziev, Simon Kuznets Kharkiv National University of Economics

Doctor of Economics, Professor, Head of the Department of Banking and Financial Services

M. Kuzheliev, University of State Fiscal Service of Ukraine

Doctor of Economics, Professor, Educational and Scientific Institute of Finance and Banking 

I. Krupka, Ivan Franko National University of Lviv

Ph. D. in Economics, Associate Professor, Associate Professor of the Department of Analytical and International Economics

N. Boiko, Simon Kuznets Kharkiv National University of Economics

Ph. D. in Economics, Associate Professor Department of Economics and Marketing

References

Agarwal, J. P. (1980). Determinants of Foreign direct investment: a survey. Weltwirtschaftliches Archiv, 116 (4), 739—773.

Awolusi, O. D., Pelser, Th. G., & Adelekan, A. S. (2016). Determinants of Foreign direct investment: new granger causality evidence from Asian and African economies. Journal of Economics and Behavioral Studies, 8 (1), 104—119.

Axarloglou, K. (2004). Local labor market conditions and foreign direct investment flows in the U.S. Atlantic Economic Journal, 32 (l), 62—66.

Baranovskyi, O. I., Kuzheliev, M. O., Zherlitsyn, D. M., Sokyrko, O. S., & Nechyporenko, A. V. (2019). Econometric models of monetary policy effectiveness in Ukraine. Financial and credit activity: problems of theory and practice, 3, 226—235. https://doi.org/10.18371/fcaptp.v3i30.179546.

Benassy, A., Larche-Revil, A., & Fontagné, L. (2000). MENA countries in the competition for FDI: Designing an exchange rate strategy. International Seminar GDR-EMMA, Commissariat du Plan. 2000/01/23. Paris.

Borensztein, E., De Gregorio, J., & Lee, J-W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45, 115—135.

Chakrabarti, A. (2003). A theory of the spatial distribution of foreign direct investment. International Review of Economics and Finance, 12, 149—169.

Chung, W., & Alcácer, J. (2002). Knowledge seeking and location choice of foreign direct investment in the United States. Management Science, 48 (12), 1534—1554.

Economou, F., Hassapis, Ch., Philippas, N., & Tsionas, M. (2016). Foreign direct investment determinants in OECD and developing countries. Review of Development Economics.

Ekanayake, E. M., & Kornecki, L. (2011). Factors affecting inward foreign direct investment flows into the United States: evidence from state-level data. Quantitative methods in economics, 12, 53—66.

Eshghi, G., Eshghi, A., & Li, R. (2016). Corporate income tax as a determinant of Foreign direct investment in Central and Eastern Europe. European Journal of Business and Social Sciences, 4 (11), 111—123.

Institutional sector accounts – Overview (2020). Eurostat. Retrieved from http://ec.europa.eu/eurostat/sectoraccounts.

Faeth, I. (2009). Determinants of Foreign Direct Investment: A Tale of Nine Theoretical Models. Journal of Economic Surveys, 23 (1), 165—196.

Gastanaga, V., Nugent, J., & Pashamova, B. (1998). Host Country Reforms and FDI Inflows: How Much Difference Do They Make. World Development, 26, 1299—1314.

Gilmore, A., O’Donnell, A., Carson, D., & Cummins, D. (2003). Factors influencing foreign direct investment and international joint ventures: A comparative study of Northern Ireland and Bahrain. International Marketing Review, 20 (2), 195—215. https://doi.org/10.1108/02651330310470401.

Hayakawa, K., Kimura, F., & Lee, H.-H. (2013). How does Country Risk Matter for Foreign Direct Investment? The Developing Economies, 51, 60— 8.

Hines, Jr. J. R. (1996). Altered States: Taxes and the location of foreign direct investment in America. The American Economic Review, 86 (5), 1076—1094.

Hoa, D. Th.., & Lin, J.-Y. (2016). Determinants of Foreign direct investment in indochina: a holistic approach. International Journal of Business and Applied Social Science, 2 (1), 1—10.

Kendall, M. (1938). A New Measure of Rank Correlation. Biometrika, 30 (1—2), 81—89. https://doi.org/10.1093/biomet/30.1-2.81.

KPMG. (2020). Retrieved from https://home.kpmg.com.

Kolodiziev, O. (2013). Formuvannia bahatorivnevoi systemy pokaznykiv finansuvannia innovatsiinoi diialnosti [Formation of a multilevel system of indicators for financing innovation]. Aktualni problemy ekonomiky Current economic problems,

8 (146), 32—44. Retrieved from http://nbuv.gov.ua/UJRN/ape_2013_8_5 [in Ukrainian].

Kolodiziev, O. M., & Boiko, N. O. (2015). Formuvannia stratehii upravlinnia spozhyvchym kapitalom mashynobudivnoho pidpryiemstva [Formation of strategies for managing consumer capital of machine-building enterprises]. Aktualni problemy ekonomiky Current economic problems, 12, 168—180. Retrieved from http://nbuv.gov.ua/UJRN/ape_2015_12_23 [in Ukrainian].

Kuzheliev, M., Britchenko, I., & Zhytar, M. (2015). Weighted Coefficient Model for Bank Investment Portfolio Optimization. Business and non-profit organizations facing increased competition and growing customers’ demands. Nowy Sącz: Wyższa Szkoła Biznesu — National-Louis University in Nowy Sącz and Fundacja Upowszechniająca Wiedzę i Naukę «Cognitione», 14, 149—162.

Lucke, N., & Eichler, St. (2016). Foreign direct investment: the role of institutional and cultural determinants. Applied Economics, 48 (11), 935—956.

Meyer, K. E., & Peng, M. W. (2005). Probing theoretically into Central and Eastern Europe: transactions, resources, and institutions. Journal of International Business Studies, 36 (6), 600—621.

OECD. (2020). Retrieved from https://data.oecd.org.

Receanu, A. S. (2010). Factors Influencing Foreign Direct Investments in Romania. Copenhagen Business School. Copenhagen.

Schneider, F., & Frey, B. S. (1985). Economic and Political determinants of Foreign direct investment. World Development,

13 (2), 161—175.

Spearman, C. (1904). The proof and measurement of association between two things. American Journal of Psychology, 15 (1), 72—101. https://doi.org/10.2307/1412159.

Ward, J. H. (1963). Hierarchical grouping to optimize an objective function. Journal of the American Statistical Association. Wei, S. J. (2000). Local Corruption and Global Capital Flows. Brooking Papers on Economic Activity, 31, 303—354.

Wells, L. T. (1998). Multinational and the development countries. Journal of International Business Studies, 29 (1), 101—114.

Wijeweera, A., Dollery, B., & Clark, D. (2007). Corporate tax rates and foreign direct investment in the United States. Applied Economics, 39 (1), 109—117.

Zengin, S., Yüksel, S., & Kartal, M. T. (2018). Understanding the Factors that affect Foreign direct investment in Turkey by Using mars method. Finansal Araştırmalar ve Çalışmalar Dergisi, 10 (18), 1309—1123.

Published

2020-12-24

Issue

Section

The topical questions about the development of finance, account and audit