FDI (Foreign Direct Investments) determinants in Greece and the impact Dissertation

FDI (Foreign Direct Investments) determinants in Greece and the impact of thr single European currency on the attraction of FDI - Dissertation Example The typical factors that bring FDIs in Greece mostly influence the capital productivity, decisions of foreign investors, and the labour costs on the sectoral level. In the conclusion, the paper provides significant policy implications. Table of Contents Table of Contents 2 1. Introduction 3 2. Literature Review 6 3. Locational Determinants of FDI INWARDS in Greece 10 4. Description of variables and hypotheses 15 6. CONCLUSIONS AND POLICY IMPLICATIONS 26 References 29 1. Introduction FDI is considered as the most important economic force in the world. The proportion of FDI in services sector is rapidly attaining great importance (United Nations Conference on Trade and Development, 2004). Special attributes making the treatment of FDI unique in the service sector include the coherence between the products’ production and consumption, the urgent requirement for local adaptation and the significant impact of quality (Boddewyn et al., 1986; Dunning, 1989). The services play a cruci al role in the entire process of production. For instance, the presence of the framework (Ramamurti and Doh, 2004) or financial services are regarded as the economy’s backbone. However, the small share of the services in the world’s exports, which is only 20 percent (IMF, 2003) highlights their non-tradable nature. Due to this specific attribute and in order to remove the trading restrictions, several businesses decide to support the domestic market with the FDIs. In services, the FDI inward stock of the world has increased from USD 950 billion to more than USD 4 trillion whilst the previous decade. At present, the FDI inward stocks in services account to over 60 percent of the total inward FDI stocks around the globe. Thus, in order to support their group internationally, numerous Multi-National Enterprises (MNEs) opt to invest in trading, marketing and financial intermediation associates. This shift of FDI flows to services is explained through the case of Greece in this study since Greece has been conventionally receiving FDI from the early 1950s. Most of the FDI flows were directed towards the sectors of basic metals, chemicals and transportation during the decade of 1963 to 1973 which extensively supported the revival and enhancement of the industrial base of the country. However, after the induction of Greece to European Union (EU), a smooth change occurred in the structure of FDI in the early 1980s. On the other hand, during the 1980s and 1990s, the FDI flows were targeted towards the industries of food, textiles, beverages and consumer electronics. The governments of Greece during that period took significant measures to lead the Greece towards rapid and sustainable development through enhancing the competitive advantages of its economy as it converged with the core countries of EU. These measures were further reinforced through targeted EU policies that specifically included Community Structural Funds and Cohesion Funds. The major part o f this support was inclined towards the development of infrastructure where as just a small portion of it was dedicated to education, training and capital (Paliginis, 2001). Presently, the objective of the policies at Greece is to encourage and attract FDI. Most of the industries in Greece are open to international investors, with the telecommunications sector being de-regularized as well as the energy industry being