Portal de Periódicos da CAPES

Bulgaria's Inward FDI and EU Accession

2013; Taylor & Francis; Volume: 19; Issue: 3 Linguagem: Inglês

10.1080/10669868.2013.793225

1528-6959

Aristidis Bitzenis, Vasileios Vlachos,

Global Financial Crisis and Policies

Abstract Bulgaria's extraordinary openness performance in terms of international trade and inward foreign direct investment (FDI) volumes has not been affected by both the country's failure to reach the levels of structural transformation and technological upgrading achieved by Central and Eastern Europe member states and by the failure to comply with European Union (EU) law within certain time frames. Although a substantial literature has evolved on the country's inward FDI due to this performance, empirical microeconomic studies explore the time frame up to EU accession. This study focuses on the effect of EU accession in order to revisit Bulgaria's primary inward FDI determinants via a meso-economic panel analysis of disaggregated data by industry. The findings indicate the neglected importance of extra-EU exports as a driver of Bulgaria's inward FDI and the appropriateness of micro-/meso-approaches to the subject. KEYWORDS: BulgariaEU accessionforeign direct investment Acknowledgments Aristidis Bitzenis is grateful to the research committee of the University of Macedonia for providing a research grant to complete this research article. The authors would like to thank the reviewers for their constructive comments. Notes a Eurostat Statistics Database available online at http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_database (accessed September 2, 2012). b Bulgarian National Bank Statistics available online at http://www.bnb.bg/Statistics/index.htm (accessed September 2, 2012). Source: Eurostat Statistics Database available online at http://epp.eurostat.ec.europa.eu/portal/page/portal/statistics/search_database (accessed September 2, 2012). *Significant at 1% level. **Significant at 5% level. Note. All time series in € billion except productivity (in €). Data for the period 1999–2011, from Bulgarian National Bank, Eurostat, and UNCTAD. Authors' calculation from latest figures available at Eurostat Statistics Database: http://eeurostat.ec.europa.eu/portal/page/portal/statistics/search_database (accessed September 2, 2012). Only Ireland, Luxembourg, and Malta top Bulgaria's performance in 2011, while the respective figure for the EU was 30.1%; see Eurostat Statistics Database op. cit. (accessed January 28, 2013). The Kosovo crisis also had negative effects on the Bulgarian economy (see Sergi Citation2000). See Communication from the Commission to the Council and the European Parliament (2007) titled Report on Bulgaria's Progress on Accompanying Measures Following Accession: http://ec.europa.eu/bulgaria/documents/abc/2007-06-27-report-greffe-3_en.doc. The progress is monitored by the Commission, and failure to meet the targets set has had severe implications (i.e., withdrawal of EU funds). See Report from the Commission to the European Parliament and the Council on the Management of EU-funds in Bulgaria (2008): http://ec.europa.eu/cvm/docs/bulgaria_report_funds_20080723_en.pdf. However, expectations for progress are very modest since "post-accession pressure yields only modest results" (Vachudova Citation2009, 59–60). The degree of openness is the volume of international transactions—international trade and FDI in this study—as a share of GDP. Capital flows liberalization implies the elimination of measures that could hamper international capital flows (i.e., the absence of any limitation on capital flows, including both the transaction and the related payments and transfers; International Monetary Fund Citation2012). The EU applies this broad interpretation. An important precondition apart from absorptive capacity for these spillovers to occur is also domestic firm size (Nicolini and Resmini Citation2010). EU announcements about accession prospects (and accession) also increase FDI inflows (see Bevan and Estrin Citation2004). See page 4 of European Commission Staff Working Document (2012) titled External Sources of Growth (progress report on EU trade and investment relationship with key economic partners): http://trade.ec.europa.eu/doclib/docs/2012/july/tradoc_149807.pdf. Labor cost in Bulgaria (euro per hour worked) is still a lot less than the EU average; see Eurostat Statistics Database op. cit. (accessed September 2, 2012). Authors' calculations based on data from Eurostat Statistics Database op. cit. (accessed September 2, 2012). The authors assert that a significant part of Cypriot FDI directed to Bulgaria is actually Greek, since Cyprus acts as a channel for transhipped FDI (Bitzenis and Vlachos 2011). According to the figures on key home economies in table 2, Greece is the key home economy that justifies the findings of previous studies about the importance of the regional characteristics (i.e., geographical and cultural proximity) that describe Bulgaria's inward FDI (see Iammarino and Pitelis 2000; Bitzenis 2004a; Bozhilova 2010). However, as previous research has shown (Narula and Bellak Citation2009), a substantial part of the demand for services is derived from manufacturing activities. For the need for a universal model and a critic of the eclectic paradigm see Bitzenis et al. (Citation2012). The variables comprising the econometric model of this study reflects only the part of the motives presented in the universal model (see Bitzenis et al. Citation2012, 52), which are related to the research questions explored (i.e., taxation and institutional motives are not included).