Author's personal copy The Journal of Socio-Economics 38 (2009) 691–704 Contents lists available at ScienceDirect The Journal of Socio-Economics journal homepage: www.elsevier.com/locate/soceco Decisive FDI obstacles as an explanatory reason for limited FDI inflows in an EMU member state: The case of Greece Aristidis Bitzenis a,∗ , Antonis Tsitouras b,1 , Vasileios A. Vlachos a a International and European Studies, University of Macedonia, Thessaloniki, Greece b A.T.E.B.E., S.A., Constructive Company, Ptolemaida, Greece article info Article history: Received 18 January 2007 Received in revised form 14 March 2009 Accepted 24 March 2009 JEL classification: F21 F23 Keywords: Multinational corporations Foreign direct investment Greece abstract A questionnaire survey covering MNCs that had invested in Greece during the period 1995–2003 is carried out in order to determine the barriers of inward FDI in Greece through a phase of increased expectations on foreign investment from hosting the 2004 Olympiad. The underlying assumption made is that the views of the local managers reflect the views of the mother company when deciding to invest. Although the findings represent the time that the investment took place, the influence of the conditions shaping the economic environment at the time the survey was carried out is also discussed. The findings indicate that the primary barriers to foreign investors are bureaucracy, taxation, corruption, and the labor market structure and support those of previous quantitative studies, leading to the conclusion that there is no progress made regarding these factors, in order to enhance FDI attractiveness. It becomes crucial for Greece to modernize and upgrade state mechanisms, through a more effective organization and administrative policies. © 2009 Elsevier Inc. All rights reserved. 1. Introduction The rapid international diversification of production processes, and the movement of financial flows across countries and regions, has highlighted the need to analyze direct investment flows. FDI data are a measure of strategic long-term real investments into (or out of) an economy. International empirical evidence shows that FDI has a significant positive impact on technological progress, R&D, innovations in productive process and, consequently, eco- nomic growth. 2 FDI has been encouraged in Greece since the early 1950s, in order to revive and expand the country’s industrial base. The adoption of Law 2687/53 on the attraction of foreign capital as well as the strategy for the reconstruction of the country after the war had a significant impact on FDI and helped the rapid increase of the cap- Abbreviations: ASE, Athens Stock Exchange; EMU, Economic and Monetary Union; EPL, Employment Protection Legislation; EU, European Union; FDI, Foreign Direct Investment; GDP, Gross Domestic Product; GNI, Gross National Income; HCI, Hellenic Centre for Investment; IMF, International Monetary Fund; IOT, International Organization of Transparency; MNC, Multinational Corporation; OECD, Organization for Economic Cooperation and Development; SGP, Stability and Growth Pact; USA, United States of America. ∗ Corresponding author. Tel.: +30 2310891498; fax: +30 2310464741. E-mail addresses: bitzenis@uom.gr, bitzenis@yahoo.com (A. Bitzenis). 1 Project Manager/Accountant/Economist MSc – TE.NA <http://TE.NA>. 2 For an analysis on the significance of FDI see Borensztein et al. (1998) and Everett (2006). ital inflows in the period 1955–1980 (Mardas and Varsakelis, 1996; Bank of Greece, 1998). When Greece joined the EMU on January 1, 2001, it committed to serious structural reforms to meet EMU con- vergence criteria. To this end, the Greek Government has opened the telecommunications market and the energy market has under- gone some deregulation. Nevertheless, the public sector has always been the major employer in the economy and the primary concern is whether the restrictions on public spending imposed by the SGP are able to affect growth. The cease of the negative effects of public investment spending on private investment as an indirect effect of the SGP, the constant effort for privatization and deregulation and the aid of structural funds were and are still expected to substitute public investment with private direct investment, domestic and for- eign (Apergis, 2000; Mamatzakis, 2007). This change of direction in the organization of the Greek economy leads to the assumption that EMU membership implies greater FDI inflows. 3 Studies indicate that after the introduction of the euro, although the FDI that reached the eurozone was largely a manifestation of the end-of-century takeover boom – a global phenomenon of which the euro was only a subsidiary cause – and even though the intra-eurozone FDI turned out to be weak, both in relation to previous trends and as a share of major economies’ global FDI flows, the euro appears to have given a modest stimulus to inflows from other major investing economies (Sousa and Lochard, 2006; Petroulas, 2007; Taylor, 2008). 3 As the absence of exchange rate volatility (Apergis et al., 2002). 1053-5357/$ – see front matter © 2009 Elsevier Inc. All rights reserved. doi:10.1016/j.socec.2009.03.001