Exploring the trend of Czech FDIs and their effect to institutional environment

Abstract

Purpose: The goal of this paper is to explore the trend of FDIs in the Czech Republic and its changes in recent years using the gravity model. Apart from traditional variables used in FDI models we also introduce IFRS in national accounting rules. Design/Methodology/Approach: We use open-source data from the World Bank and FDI data from the Czech national bank, to analyse a panel data of bilateral FDI for 19 EU countries over the period 2008–2017 by PPML specification. Findings: We have observed significant effect of positive impact on broader introduction of IFRS in 2010 in terms of country imports and exports. We observed lower significance of IFRS dummy in the gravity model, where dependent variable is the sum of FDI inflow and FDI outflow it is not significant in the models which dependent variables are FDI inward and FDI outward for FDIs. Practical Implications: In general, FDIs increased productivity in the Czech Republic, especially in 1990s. We assess the effect and possible contribution of traditional variables like size, GDP, border and distance to Czech FDIs. Originality/Value: We find that the positive effect of IFRS exists at 10 percent significance for FDIs. Nevertheless we claim that this effect is mixed with other institutional issues, namely institutional isomorphism. Further tests will be needed after the forthcoming change of the Czech accounting act, which is approaching after 2020.