Foreign Direct Investments and their Institutional Quality Factors in Romania and Bulgaria
Foreign Direct Investments and their Institutional Quality Factors in Romania and Bulgaria

Summary/Abstract: The economic literature has focused on the traditional factors impacting foreign direct investments (such as fiscal factors), while the non-traditional factors (such as institutional factors) have been less analyzed. The aim of this paper is to present an econometric analysis using Least Squares Method for emphasizing the political institutional factors, economic institutional factors and the quality of labor force factors impacting on the foreign direct investments attracted in Bulgaria and Romania. We used yearly data series from 1999 to 2014, provided by the World Bank. These two countries display a very friendly climate (low income corporate tax), but they attracted large amounts of foreign direct investments only for a short period of time during the mid2000s’. Our results show that, in Romania, a high-skilled labor-force has attracted foreign direct investments in the economic sectors that have contributed to an intensive economic growth, but the low quality of the infrastructure has negatively impacted foreign direct investments inflows. Political and fiscal instability, mainly during preelection periods, has also attracted foreign direct investments. In Bulgaria, lax laws and weak governance effectiveness have attracted foreign investors that avoided bureaucracy and numerous business regulations. In Bulgaria, foreign direct investments seek mainly cheap and low-skilled labor force in the sectors that contributed to an extensive economic growth. Romania should focus on improving its infrastructure, while Bulgaria should focus on diminishing corruption.

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