The Financial Setting for FDI Inflows into The Czech Republic and Slovakia

Abstract

This study examines the relationship between foreign direct investment in the Czech Republic and Slovakia and such potentially explanatory factors as trade flows, measures of economic and financial stability, and country risk. The authors find that as the Czech and Slovak Republics progress toward market economies, some policy points to consider include: transparency of markets, economic systems, social and political organizations; an increase in commerce and investment, which makes reversals of reforms less likely and the condition of financial factors that contribute to increased investment.At this time, these transition economies possess many of the resources needed for development, such as educated labor forces, an entrepreneurial orientation among the citizens, and available land. Yet, another key resource, capital, is in short supply in the region. An important precondition to obtaining capital is the demonstration of economic and political stability (see Kyrkilis and Pantelidi 2006). By improving the transparency of their legal, banking, and capital markets sectors, the Czech and Slovak Republics can accelerate their progress toward free markets and democratic societies.Our research finds that relationships exist among country risk ratings, financial market variables, and expected returns in this region; such relationships can be useful in developing policies to improve capital markets and attract external capital. The importance of building upon other researchers in this field updates that research plus incorporates new aspects of issues now developing. This research topic is fluid and demands continuous review and testing.

Determinants of FDI Stock in Some Central European Countries

“…Dinga and Münich conducted research in the Czech Republic to study the effects of a territorially concentrated foreign direct investment flow on the results of local labor markets there (Dinga and Münich 2010). Finally, Jankovic and Yatrakis analyzed the link between foreign direct investment (FDI) in the Czech Republic and Slovakia and other variables that influence the relationship, such as trade flows, economic and financial stability measures, and country risk (Jankovic and Yatrakis 2011).…”

“…The initial results obtained in this paper, the regression equations corresponding to the econometric models of the FDI stock, the interpretation of the results and possible measures that can be taken to increase the stock of FDI in the countries that were analyzed are all included in the fourth section of this paper. We can also say that the novel elements of this work, compared to the research that has been conducted in the past (see, for example, Hayat 2019;Dauti 2015;Sakali 2015;Stack et al 2017;Jankovic and Yatrakis 2011;Burlea-Schiopoiu et al 2021), consist in the original combination of economic indicators from the validated regression models, which explain more than 78% of the evolution of FDI stocks in the analyzed countries. Finally, the findings and interpretations of the research are presented in the fifth section of this paper.…”