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Many of the emerging and transition economies in Central and Eastern Europe (CEE) have been building their economies largely on the infrastructure inherited from Communist times. It is widely recognized that much of the infrastructure in both the private and public sectors must be replaced if those economies are to achieve acceptable rates of economic growth and participate successfully within the broader European Union (EU) economic zone (The Economist, 2003). Upgrading infrastructure includes the likely importation of technology and management expertise, as well as substantial financial commitments. In this regard, inward foreign direct investment (FDI) is a particularly important potential source of capital for the emerging and transition European economies (ETEEs). FDI usually entails the importation of financial and human capital by the host economy with measurable and positive spillover impacts on host countries’ productivity levels (Holland & Pain, 1998a). The ability of ETEEs to attract and benefit from inward FDI should therefore be seen as an important issue within the broader policy context of how these countries can improve and expand their capital infrastructure, given relatively undeveloped domestic capital markets and scarce human capital.

The economic growth of any country depends largely on the entrance to international capital inflows, that is, external investment and its optimum allotment to components of different economic sectors. In several ways, foreign direct investment (FDI) helps by creating employment opportunities and rapid economic growth in emerging countries through capital flows in the developed countries and under developed countries. Many factors are affecting the FDI inflows in emerging countries among such determinants environmental issues are play a crucial role. Pollution control, air cleaner, water cleanness, etc., are the part of the environmental regulation in any country. Carbon dioxide (CO₂) emission and sulphur dioxide (SO₂) emission are major components of air pollution that have been widely used in empirical studies. The study intends to explore the impact of environmental regulations on FDI inflows in emerging countries along with governance factors and the macroeconomic fundamentals like per capita power consumption, trade openness, per capita GDP, etc. Based on the statistical data of 15 emerging countries from 2000 to 2015, the study follows the static panel data approach to empirically find the impact of environmental issues on FDI inflows. The results reveal that significant bonding realise between environmental regulations and FDI inflows in emerging countries. Based on the statistical evaluation however best our knowledge FDI is more attractive where lower regulations are established. For sake of simplicity environmental regulations are crucial to the multinational corporations (MNCs) for investment.

This chapter examines the role of formal and informal institutions in foreign direct investment (FDI) dynamics.

We examine the effects of the quality of legal, political, and economic formal institution as well as the effect of institutional distance (based on new dataset) on bilateral inward FDI stocks in 34 Organization for Economic Cooperation and Development countries for the period 1990–2010 using a gravity specification. Additionally, we also examine FDI for the effects of a specific informal institution – attitude of the public toward economic liberal issues. Reactions of FDI to liberal and nonliberal public opinion (part of informal institutions) are examined with and without controlling for formal institutions.

Findings show that the quality of legal and political institutions are important determinants of FDI, that legal and political institutional distance are both significant obstacles to FDI, and that public opinion also matters. We find that it is important to control for formal institutions when looking at the effect of informal institutions, and that both past liberal and nonliberal public opinion correlate with FDI, but only nonliberal public opinion significantly reduces inward FDI directly.

Results are relevant for enterprises’ investment strategies, marketing strategies influencing public opinion as well as for policy makers, and governmental agencies involved in investment promotion programs.

Exploring the interplay between formal and informal institutions, institutional quality, institutional distance, and their effect on FDI in a bilateral panel.

In the enlarged European Union (EU) with 25 members, the free movement of capital, coupled with the free movement of goods and services should be a major direct attraction for both intra-EU and external foreign direct investment (FDI) inflows. EU membership does not, however, lead to a linear increase in FDI inflows as many analysts suggest (ECE, 2001). With EU accession, the structure of FDI may change substantially (Hunya, 2000; Dyker, 2001). Activities based on the existence of closed domestic markets (e.g. food and beverages) and on cheap labour (e.g. assembly activities) might be reduced, or even closed down, giving way to more knowledge-intensive activities in the new EU member countries (Kalotay, 2004a). FDI in the new EU member countries is not yet on an uninterrupted growth path. In the pre-accession phase (1995–2003), the relative importance of new EU members in global FDI flows when compared to that of the “old” members of the EU, was actually shrinking. Thus, if new members want to use FDI as one channel for catching up, they have to reverse this trend and increase their inward FDI quite rapidly.

This paper investigates how relative environmental regulation influences the flow of foreign direct investment (FDI), and thereby assesses the pollution haven hypothesis (PHH). In this field, conflicting results exist, partly due to the mere consideration of absolute environmental regulation or the inadequate consideration of endogeneity. Concerning these, we study China’s inward FDI from 26 developed countries and 12 developing countries over 1996–2009, and collect four different environmental regulation indicators at relative values of CO₂, SO₂, PM10, and an environmental regulation index. Using an instrumental variable approach, we find strong PHH evidence no matter for the subsample of FDI from developed countries or the one from developing countries. Moreover, we show how such results can be masked if failing to consider the endogeneity.

Purpose – The paper addresses the MNCs’ sensitivity to corruption which varies across economic sectors depending on the interaction between sectoral characteristics and home-country formal institutions’ strength.

Design/methodology/approach – A theoretical framework is proposed based on the economic sector and host-country's institutional factors. The framework is empirically tested using 245 cross-border FDI valuations. Given that the energy sector is representative of high levels of industry concentration and government involvement – the sectoral characteristics considered to be moderating the relationship between corruption and FDI – the focus of the paper is on the energy sector. The study also tests the moderating effect of corruption distance.

Findings – The results indicate a lack of evidence that MNCs are deterred by corruption when investing in the energy sector of emerging and developing economies.

Research limitations/implications – The study provides a starting-point for further research of how economic sector characteristics can moderate the relationship between corruption and FDI. A key practical implication is that international anti-corruption measures are likely to be insufficient for some economic sectors.

Originality/value – The paper has proven to be of interest to the US State Department for studying the effectiveness of the international foreign bribery laws, such as the Foreign Corrupt Practices Act. The framework can assist in identifying economic sectors likely to be resistant to comply with the foreign bribery laws when conditions of weak host-country formal institutions are present. The study challenges and complements the prevailing theory that host-country corruption has a negative effect on inward FDI.

The chapter adopts the international production typology offered by the OLI paradigm whereby firms are classified principally as market seekers, efficiency seekers, natural resource seekers or partner seekers. These motives to reach overseas are tested against 26 location factors, categorised under ‘business climate’, ‘market conditions’, ‘local resources’ and ‘incentive packages’, and three sets of control variables: industry, age and entry mode. The empirical analysis based on firm-level data from 15 sub-Saharan countries shows that, for all types of firm, the presence of local markets, regional markets and key clients are the positive determining location factors, followed by business climate factors, such as labour costs, the availability of skilled labour, raw materials and local suppliers. For market-seeking MNEs, the political and economic stability, infrastructure, country's legal framework and the transparency of investment all rate high. Importantly, the implication for host-nation promotion agencies is that once the motive to enter their economies is clear, they can – and should – play a skilful negotiation game with MNEs at the entry point itself. Based on the empirical analysis, a conceptual two-step approach to understanding FDI decisions, intimately linked to the liability of foreignness concept, is suggested.

Using the 1995 Third Industrial Census data in China, I explore the impact of inward FDI on the productivity performance of domestic SOEs. Multilevel analyses of city- and firm-level data show that presence of FDI-related firms (sanzi qiye) in a city significantly improves the total factor productivity of SOEs that are located in the same city but not affiliated with FDI. I interpret the effects as not only technology spillovers but also as FDI-induced institutional innovations and reforms.

This study examines the determinants of performance of foreign manufacturing subsidiaries in Japan. The study finds that a foreign parent’s size, the subsidiary’s age, and a complicated distribution system influence a subsidiary’s performance. There was little significant change in these determinants over a 20-year period. However, for subsidiaries that survived over the observation period of this study, some determinants changed. We also found that by forming joint ventures with Japanese firms, foreign firms can overcome the obstacle of distribution and circumvent the disadvantage of inexperience. Moreover, the mitigating effects of joint ventures vary, depending on the type of Japanese partner.

Purpose – This study aims to explain current condition of investment inflow into Aceh Province of Indonesia after peace agreement between Free Aceh Movement and the Government of Indonesia was resolved. This peace agreement was achieved after both parties were involved in political conflict for three decades

Methodology – This study applies qualitative methods by using descriptive approach. Data required for this study were obtained from library research by analyzing primary and secondary resources. Primary resources were collected by analyzing current literature. Secondary resources were obtained by reviewing some previous research report, government report and other institution report which are related to this study. All collected data were analyzed by using qualitative analysis.

Findings – The results indicate that investment inflows into Aceh Province after a peace agreement have significantly increased. This condition is caused by better investment condition after Free Aceh Movement and the Government of Indonesia agree to seek a peaceful resolution through a peace agreement. It has been noted that political conflict in Aceh had occurred from 4th December 1976 until 15th August 2005. Prior to 15th August 2005 most investors were reluctant to invest in Aceh because unsecure conditions were rampant everywhere.Better investment inflow into Aceh after peace agreement is also motivated by the enactment of Law Number 11 of 2006 on the Governance of Aceh. By having this law the Government of Aceh has more power to manage and attract new investment to be invested in Aceh Province. This law provides more spaces for the Government of Aceh to provide adequate incentives and interesting facilities for certain sectors of investment to attract more inward FDI. Therefore, it is suggested that the Government of Aceh should maintain stable political condition to attract more investment inflows into Aceh in the future.