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Business regulation, inward foreign direct investment, and economic growth in the new European Union member states

Matthew M.C. Allen (Comparative and International Business Research Centre, Manchester Business School, The University of Manchester, Manchester, UK)
Maria L. Aldred (Department of Management, Manchester Metropolitan University Business School, Manchester, UK)

Critical Perspectives on International Business

ISSN: 1742-2043

Article publication date: 19 July 2013

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Abstract

Purpose

The purpose of this paper is to assess the extent to which institutional convergence has taken place in the new European Union (EU) member states. It does so by contrasting arguments that are inspired by transaction‐cost economics within the mainstream international‐business literature and contentions within the comparative‐capitalisms perspective. A corollary of arguments within the former is that those countries that have less transparent ways of doing business will post poorer economic growth records than those with more predictable and less costly regulations. By contrast, contentions within the comparative‐capitalisms literature lead to expectations that a broader set of institutional factors will shape economic growth.

Design/methodology/approach

The article adopts a fuzzy‐set qualitative comparative analysis approach to examine the necessary and sufficient causal conditions for economic growth in the region.

Findings

There is a great deal of institutional diversity within the new EU member states in Central and Eastern Europe. There are no clusters of countries around a specific variety of capitalism or an economic model that has above‐average economic growth rates and that is characterized by institutions that lower the costs of market transacting. This, in turn, suggests that convergence pressures are not as great as the mainstream international‐business literature has argued.

Research limitations/implications

Future research could complement this study by adopting a cross‐country, comparative micro‐ or firm‐level approach to examine the ways in which different institutional factors, both individually and collectively, shape the growth of businesses and consequently, economies.

Originality/value

Mainstream international business tends to focus on regulation and market‐supporting institutions to explain growth in developing economies. This research has shown that a broader view of institutions needs to be adopted, as some countries have been able to post strong economic growth figures despite institutional environments that do not lower the costs of market‐based contracting.

Keywords

Citation

Allen, M.M.C. and Aldred, M.L. (2013), "Business regulation, inward foreign direct investment, and economic growth in the new European Union member states", Critical Perspectives on International Business, Vol. 9 No. 3, pp. 301-321. https://doi.org/10.1108/17422041311330431

Publisher

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Emerald Group Publishing Limited

Copyright © 2013, Emerald Group Publishing Limited

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