Economics Institutions and the Outward FDI Location Strategies of Emerging Market Multinational Business Groups: Evidence from Central and Eastern European Countries

Abstract

Using an extensive data set on the Outward Foreign Direct Investment (OFDI) projects from Central and Eastern European Countries (CEEC), this study empirically examines the impacts of host country economic institutions, including property rights protection, corruption, taxation, business operating regulations and economic stability, on firms’ location decisions in the European Union (EU), while controlling for other conventional determinants of location choice. From a data set of 24,726 location decisions of 951 firms for a time period from 1995 to 2010, the robust empirical evidence suggests that a corruption-free country with a lower tax burden and friendly business regulations positively influence the OFDI location choice strategies of CEEC multinationals. However, these factors vary depending on whether the host country has an advanced economy (EU15: original member countries of the EU), or an emerging economy (CEEC). The effects of economic institutions are more profound on the location activities in the advanced economies of the EU than in other CEEC. Furthermore, CEEC investors generally prefer to be located in countries that have better institutions than their home countries.