Obstacles for FDI inflow to eurozone periphery
Eurozone crisis intensify the divergence process between core and periphery countries. In some periphery countries (Greece, Spain) unemployment exceeded 25%. All periphery countries have problems with economic recovery. In Greece GDP declined already by more than 30% compared with pre-crisis situation. As members of monetary union, those countries cannot attempt to improve their competitiveness and thus stimulate growth via nominal depreciation of their currency. The only way forward is so called internal devaluation – decrease of wages and prices. Economic theory supposes that countries decrease wages and improve productivity of labor will be more attractive for FDI. Private capital inflow form FDI could help Eurozone periphery countries recover from economic recession and decrease their unsustainable levels of unemployment. However we do not observe significant increase of FDI to these countries. We would like to identify the main obstacles to foreign direct investment in Eurozone periphery.
Objectives:
The objective of the paper is to identify what are the obstacles for private capital inflow (FDI inflow) to Eurozone periphery countries. Based on experience of good practices from transformation of CEE countries we will recommend what should be the role of EU institutions, international organizations (type of IMF) and national governments with respect to promoting (stimulating) higher FDI inflow to Eurozone periphery.
Data/Methods:
Sources of data: Eurostat. The Chinn-Ito Index. Amadeus database. Multi - regression Analysis. Cluster Analysis.
Expected Results:
The transformation of CEE economies during 90s was celebrated as a success. FDI inflow played a significant role. Given the situation in Eurozone periphery, some lessons from CEE transformation can be learned. Based on both analysis of obstacles of FDI inflow to Eurozone periphery and best practices exercise in CEE countries, we will provide recommendations for policy makers at both the EU and national levels regarding how to stimulate FDI inflow to Eurozone periphery with the aim of supporting economic recovery and decreasing unemployment.
Keywords: Eurozone periphery, economic growth, unemployment, FDI inflow, CEE transformation