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Article Excerpt
Introduction
During the last decades, the global foreign direct investment (FDI) inflows have increased substantially from $25 bn in 1973 to $1,271 bn in 2000, (UNCTAD 2003). The competition among countries for the attractiveness of FDI has also increased, especially among countries of the same geographical zone (e.g., EU, Asian Countries etc). Furthermore, the fact that in 2004 ten new countries (Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovak Republic, and Slovenia) became members of the EU increased the "race" for FDI in this region. According to Clegg and Scott-Green (1999), the multinationals have constraints both globally and in regions. This means that a flow of a FDI in one part of the EU might have, as a result, a reduction somewhere else, and this is how the race for the attraction of FDI among the countries of the EU, and especially among the ten new members, can be explained. The progress of the economic integration of the countries of the EU had, as a result, some members to become more attractive for FDI compared to how they were in the past (Oxelheim and Ghauri 2004).
The eclectic paradigm of international production created by Dunning (1977, 1988) has melded many parts of the prevailing, until then, theories of FDI. The eclectic paradigm suggests that there are three sets of variables, which determine the extent and the form of the foreign owned production. The first set is the ownership specific advantages. These are ownership advantages, which are held exclusively by the multinational like expertise or patents and allow the multinational to compete with the other enterprises despite the disadvantages that might occur by the fact that it is a foreign company.
The second set is the location-specific advantages, which include factors specific to a place that must also be used in that particular place. These include labour advantages, natural resources, trade barriers that restrict imports, etc. According to Yoshitomi, the location-specific advantages are largely exogenous at the time that the decisions for the FDI are made (Yoshitomi and Graham 1996). The elimination of trade barriers between the countries of the union and the easement of the transactions are some of the reasons that could affect the decision on the extent of FDI and make one country more or less attractive.
Finally, the third set is the internalisation advantages. These advantages refer to the gains that a multinational has by using its ownership internally instead of buying or selling from third parties.
Dunning (1993) identified four categories of motives for FDI: resource seeking, market seeking, efficiency seeking, and strategically motivated seeking. The resource seeking FDI has as a target to acquire specific resources less costly than if purchased in the home country or in another place in which the multinational operates. The basic types of resources that the multinational enterprises are investing for are natural resources, raw materials, and technologically or created assets (e.g., patents). The market seeking FDI has as a main target to gain access to the market of the host country to provide the goods and services of the company and possibly to expand to adjacent countries. The main reasons that multinationals could prefer to invest in a foreign country rather than export are the possible trade barriers imposed by the host country (e.g., tariffs) and the high transport costs. Furthermore, the main factors of the attractiveness of market seeking FDI are the size of the market-population and the rate of the market growth. The efficiency-seeking FDI seeks to gain from scope and scale economies from common governance. One of the main forms of this FDI has as a target to increase the efficiency of the company by transferring part of the activities of the multinational to countries with lower labour costs. Finally, the strategically motivated-seeking FDI has as a main target to sustain, establish, or advance the position and the advantages of the multinational over a long-term period.
There is considerable theoretical and empirical research on FDI determinants and attractiveness. Loewendahl and Ertugal-Loewendahl (2001) analyse Turkey's performance in attracting FDI. Carstensen and Toubal (2004) using dynamic panel data methods suggest that both traditional determinants and transition-specific factors play an important role in determining FDI flows in Central and Eastern European countries. There are also other studies concerned with economic integration and FDI determinants (Janicki and Wunnava 2004; Galego et al. 2004; Balasubramanyam et al. 2002; Neven and Siotis 1996; Pain and Lansbury 1997).
The aim of this paper is (1) to construct and test a model explaining the inward FDI position of Greece on the basis of its location advantages, and (2) to construct a comparative index of FDI attractiveness in order to find the differences in the attractiveness between Greece and...
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