European FDI in Ireland and Iceland: Before and after the financial crisis

K is jánsdó i , Helga; Óska sdó i , S e anía A icle Eu opean FDI in I eland and Iceland: Be o e and a e he inancial c isis Jou nal o Risk and Financial Managemen P o ided in Coope a ion wi h: MDPI – Mul idisciplina y Digi al Publishing Ins i u e, Basel Sugges ed Ci a ion: K is jánsdó i , Helga; Óska sdó i , S e anía (2021) : Eu opean FDI in I eland and Iceland: Be o e and a e he inancial c isis, Jou nal o Risk and Financial Managemen , ISSN 1911-8074, MDPI, Basel, Vol. 14, Iss. 1, pp. 1-12, h ps://doi.o g/10.3390/j m14010023 This Ve sion is a ailable a : h ps://hdl.handle.ne /10419/239440 S anda d-Nu zungsbedingungen: Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen Zwecken und zum P i a geb auch gespeiche und kopie we den. Sie dü en die Dokumen e nich ü ö en liche ode komme zielle Zwecke e iel äl igen, ö en lich auss ellen, ö en lich zugänglich machen, e eiben ode ande wei ig nu zen. 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Eu opean FDI in I eland and Iceland: Be o e and a e he Financial C isis. Jou nal o Risk and Financial Managemen 14: 23. h ps://doi.o g/10.3390/ j m14010023 Recei ed: 9 No embe 2020 Accep ed: 25 Decembe 2020 Published: 6 Janua y 2021 Publishe ’s No e: MDPI s ays neu- al wi h ega d o ju isdic ional clai- ms in published maps and ins i u io- nal a ilia ions. Copy igh : © 2021 by he au ho s. Li- censee MDPI, Basel, Swi ze land. This a icle is an open access a icle dis ibu ed unde he e ms and con- di ions o he C ea i e Commons A - ibu ion (CC BY) license (h ps:// c ea i ecommons.o g/licenses/by/ 4.0/). 1Facul y o Business Adminis a ion, Uni e si y o Aku ey i, Bo gum, No ðu slóð 2, 600 Aku ey i, Iceland 2Facul y o Poli ical Science, Uni e si y o Iceland, 102 Reykja ík, Iceland; [email p o ec ed] *Co espondence: [email p o ec ed] Abs ac : This pape analyses Fo eign Di ec In es men (FDI) in es men in I eland and Iceland om o he Eu opean coun ies du ing wo pe iods, i.e., he p e- inancial c isis pe iod o 2000–2007 and he inancial c isis pe iod o 2008–2010. The aim o his esea ch is o de e mine wha made he coun ies in e es ing o o eign in es o s in bo h good and bad imes; and, secondly, o examine whe he Eu opean Union membe ship (and he Eu o) made a di e ence in his espec . The esul s we e ob ained by using da a om he OECD, he Wo ld bank, and o he sou ces. The model cons uc ed o he s udy applies he in e se hype bolic sine ans o ma ion o he g a i y model, which is a no el app oach. The esul s demons a e ha be o e he inancial c isis o 2008, Eu opean Union (EU) membe ship did no help I eland a ac mo e FDI om o he EU coun ies. Howe e , once i had been hi by he c isis, I eland a ac ed mo e FDI om o he EU coun ies. Iceland, on he o he hand, which is no an EU coun y, a ac ed FDI om non-EU coun ies a he han om EU coun ies be o e he inancial c isis. A e he c isis, howe e , he o igin wi hin Eu ope, o FDI in Iceland had no signi ican e ec on he low o FDI in o he coun y. Keywo ds: Eu opean Union (EU); Fo eign Di ec In es men FDI; T ade Blocs; EFTA; In e na ional Mone a y Fund (IMF) 1. In oduc ion This pape analyses Fo eign Di ec In es men (FDI) in es men in I eland and Iceland om o he Eu opean coun ies du ing wo pe iods, i.e., he p e- inancial c isis pe iod o 2000–2007 and he inancial c isis pe iod o 2008–2010. The aim o his esea ch is o de e mine wha made he coun ies in e es ing o in es o s in bo h good and bad imes; and, secondly, o examine whe he Eu opean Union (EU) membe ship (and he Eu o) made a di e ence in his espec . Be o e deciding whe he o in es long e m in ano he coun y, in es o s ake a ious economic and poli ical ac o s in o conside a ion. In his pape we look a some o hese ac o s o see which ma e ed he mos . They include he isk o poli ical ins abili y, go e nmen e iciency, coun y endowmen s, coun y c edi a ing, in es men isk, cul u al dis ance and ade-bloc membe ship. The ecen exi o B i ain om he Eu opean Union (EU 2020), Eu o skep icism in a ious pa s o Eu ope, as well as he ecen economic down u n in Eu ope due o Co id-19, indica e ha he e a e lessons o be lea n om his esea ch o o he small and medium sized economies. Da a on FDI om he OECD (2020) was used o he analysis. Be o e explaining in u he de ails he design o he s udy, he da a and he esul s, a ew wo ds a e wa an ed o explain why compa ing I eland and Iceland is in e es ing. Al hough I eland and Iceland ha e some hings in common, hey also di e in some ways (EU 2020;EFTA 2020). The g ea es poli ical-economic di e ence be ween he wo coun ies is ha I eland belongs o he EU and has adop ed he Eu o while Iceland has no . Bo h coun ies a e small island s a es wi h open economies (Wo ld Bank 2020). O he wo, Iceland has a much smalle popula ion han I eland, some 360.000 compa ed o I eland’s J. Risk Financial Manag. 2021,14, 23. h ps://doi.o g/10.3390/j m14010023 h ps://www.mdpi.com/jou nal/j m J. Risk Financial Manag. 2021,14, 23 2 o 12 almos i e million inhabi an s (Wo ld Bank 2020). Bo h coun ies ha e a ela i ely well- educa ed labo o ce and good li ing s anda ds (Wo ld Bank 2020;OECD 2020). Thus in 2007 he GDP pe capi a in Iceland was € 50,500 compa ed o € 44,820 in I eland (IMF 2020). Addi ionally, being small open economies bo h coun ies depend hea ily on expo s and impo s (K ugman 1991). As a esul , ade is e y impo an o bo h coun ies. Howe e , as has al eady been poin ed ou , hey ha e aken di e en pa hs when i comes o membe ships in ade alliances (EU 2020;EFTA 2020). I eland was one o he ounding membe s o he Eu opean F ee T ade Ag eemen (EFTA), es ablished in 1960. In 1973 I eland joined he Eu opean Communi y (EC) along wi h B i ain and Denma k, which in 1993 became he Eu opean Union (EU). Iceland, on he o he hand, joined he EFTA in 1970 (EFTA 2020). In 1994 he emaining EFTA coun ies (Iceland, No way and Lich ens ein) and he EU es ablished he Eu opean Economic A ea (EEA) which secu es he ee mo emen o goods, capi al, labo , and se ices wi hin he Eu opean single ma ke , al hough wi h some excep ions (EU 2020). Fo example, in he case o Iceland, o eign owne ship o companies in he, locally impo an , ishing sec o canno exceed 49%. When he Eu o came in o exis ence in 1999, many o he EU coun ies adop ed i as hei cu ency, including I eland. In compa ison, Iceland kep i s small cu ency (K óna, ISK) and emained ou side he EU. By no joining he EU, Iceland s ayed ou o he EU’s Common Fishe ies Policy, he Common Ag icul u al Policy, as well as he majo EU ins i u ions. By keeping i s cu ency, Iceland e ained ull con ol o e i s mone a y policy. Since 2002 he alue o he Icelandic K óna (ISK) has been de e mined by he o ces o supply and demand ( loa ing cu ency), managed by he Icelandic Cen al Bank (ECB 2020), which enjoys au onomy om he go e nmen . In he yea s leading up o he inancial c isis o 2008, bo h Iceland and I eland saw high in lows o o eign capi al and in es men (Wo ld Bank 2020;IMD 2020;K is jánsdó i 2010;Ma kusen 2004). In he case o Iceland, high domes ic in e es a es and cheap o eign loans had con ibu ed o some o his in low. Howe e , once conce ns g ew abou he iabili y o he Icelandic banking sys em, capi al ligh began (IMF 2020;OECD 2020). Wi h a sh inking supply o o eign cu encies, coupled wi h a g ea demand o hem, he alue o he ISK d opped by some 50% in 2008. The Icelandic s a e also p o ed unable o sa e i s majo banks, which hen iled o bank up cies in Oc obe 2008. The esul ing economic c isis di ec ly impac ed i ms as well as he public, ueling poli ical un es as well (e.g., Benedik sdó i e al. 2011;Óska sdó i 2013). Iceland en e ed an IMF p og am in 2008 (Gissu a son 2010;IMF 2018). In con as , I eland, as a membe o he Eu o-zone, was able o ge help om i s Eu opean allies wi h e- inancing i s banks, hus sa ing hem om a collapse. Howe e , in u n, i s public deb ose apidly as did unemploymen due o he impac o he inancial c isis (e.g., Riain 2012;OECD 2020).In Iceland, he cu ency c isis con ibu ed o he decision o he Icelandic go e nmen o apply o EU membe ship in 2009, wi h he aim o joining he Eu o-zone (ECB 2020). Fo a ew yea s, he ques ion o EU membe ship domina ed he poli ical discou se in Iceland (e.g., Tho hallsson and Rebhan 2011). Howe e , a new go e nmen coali ion ha came in o powe in 2013, decided o wi hd aw he EU applica ion, wi h he a gumen ha i bes se ed Iceland’s in e es s o emain ou side o he EU and no adop ing he Eu o (Gua dian 2015). As he esul s will show, his migh ha e been he igh call. Be o e he inancial c isis o 2008, EU membe ship did no help I eland a ac mo e FDI om o he EU coun ies. Howe e , once he c isis had hi I eland, EU membe ship seems o ha e made a di e ence in ha i a ac ed FDI om o he EU coun ies. Iceland, on he o he hand, a ac ed FDI om non-EU coun ies a he han EU coun ies be o e he inancial c isis. A e he c isis, howe e , he o igin wi hin Eu ope, o FDI in Iceland had no signi ican e ec on he low o FDI in o he coun y. The pape is s uc u ed as ollows. Sec ion 2lays ou he li e a u e e iew as i ela es o FDI wi hin in e na ional economics. Sec ion 3p o ides desc ip ion o he model speci i- ca ions o he g a i y model used in his s udy, in o de o bes cap u e de e minan s o J. Risk Financial Manag. 2021,14, 23 3 o 12 FDI in Iceland and I eland, be o e and a e he global inancial c isis. Sec ion 4o e s a desc ip ion o he da a applied in his cu en esea ch. Sec ion 5p esen s he eg ession esul s, ob ained om es ima ing a ious g a i y model speci ica ions, unning be o e and a e he inancial c isis. Finally, Sec ion 5p o ides a summa y and conclusions. The ind- ings indica e ha he EU membe ship o I eland was no bene icial in a ac ing FDI om Eu opean coun ies be o e he inancial c isis. Howe e , i had posi i e signi ican e ec s on FDI in low a e he c isis. Addi ionally, an EU membe ship o Eu opean coun ies had a signi ican nega i e impac on hei incen i e o unde ake FDI in Iceland be o e he c isis, and insigni ican e ec s a e he c isis. 2. Li e a u e Re iew New on p esen ed he g a i y model wi hin he ield o physics. Acco ding o i , he g a i y o ce is subjec o wo masses and how dis an hey a e om each o he (Keesing 1998). Economis s ha e applied he g a i y model success ully in economics, when es ima ing he de e minan s o ade in he o m o expo s and FDI (Ma kusen 2004). In e es ing p esen a ions o he g a i y model we e made by Tinbe gen (1962) and Pöyhönen (1963). Helpman (1984) in oduced he e ical model o FDI and Ma kusen (1984) he ho izon- al model, accoun ing o e ical FDI and ho izon al FDI. Be gs and (1985) also p o ided a heo e ical basis o he g a i y model and K ugman (1991) allowed o inc easing e u ns and economic geog aphy. K ugman (2011) explained ha smalle economies end o be less di e si ied and ely on ew main indus ies. G owing esea ch has been published wi hin in e na ional economics on o eign di ec in es men (e.g., Ca e al. 2001;Ma kusen 2004). Fea u es o bo h he e ical and ho izon al models a e accoun ed o in a esea ch by Ma kusen e al. (1996). This is also well documen ed in Ma kusen (2004). Se e al s udies ha e s udied he de e minan s o o eign di ec in es men (Da ies and K is jánsdó i 2010;Da ies e al. 2008). Some ha e looked on FDI de e minan s in gene al (Da ies 2008) and o he speci ically on islands like Iceland (K is jánsdó i 2013). S udies ha e sough o analyze ac o s like cul u e and FDI (Ho s ede 1980,2001; K is jánsdó i 2010,2012,2013,2016a,2016b,2017,2019a,2019b,2020;K is jánsdó i e al. 2017,2020). Resea ch has also shown ha nume ous a iables a e signi ican when i comes o es ima ing ade lows, o eign di ec in es men and e u n on in es men (Ma kusen 2004;K is jánsdó i 2010,2012,2013,2016a,2016b,2017,2019a,2019b,2020;K is jánsdó i and Óska sdó i 2020;K is jánsdó i and K is jánsdó i 2021). We seek o de e mine how FDI is a ec ed like issues like GMT go e nmen e iciency (K is jánsdó i 2016b). The da a app oach is like he one used by Da ies (2008). We apply he G a i y model as p esen ed by Be gs and (1985) and skill di e ences as p esen ed in he knowledge capi al model (Ca e al. 2001). Along he lines o (Zwinkels and Beugelsdijk 2010), we accoun o isk o poli ical ins abili y, go e nmen e iciency, coun y c edi a ing, and in es men isk. Mo eo e , we accoun o cul u e based on he Ho s ede cul u e measu e (Ho s ede 1980,2001;Ho s ede and Bond 1988;K is jánsdó i e al. 2017, 2020). Such an app oach makes i possible o es ima e impo an de e minan s o FDI (Ma kusen 2004) in small open economies (K is jánsdó i 2020). The con ibu ion o his s udy, wi hin in he ield o in e na ional economics, is o use bo h economic and poli ical a iables. Because i is impo an no only o look a economic ac o s, bu also a poli ical ac o s as well. Usually, s udies on FDI a e ocused on basic economic ac o s, bu his esea ch inco po a es isk, c edi a ing, poli ical ins abili y, and go e nmen e iciency. 3. Model Speci ica ion The choice o me hod in his esea ch is based on K ugman’s inc easing e u ns and economic geog aphy (K ugman 1991), linking economic weigh wi h dis ance in he g a i y model se ing. Thus, he me hod in ol es usage o he g a i y model (Be gs and 1985;Ca e al. 2001) which is sui able, compa ing de e minan ac o s o FDI such as J. Risk Financial Manag. 2021,14, 23 4 o 12 economic size (GDP) ma ke size (POP) cul u al dis ance (Ho s ede), skill di e ences, and EU membe ship. Ou addi ional heo e ical con ibu ion is applica ion o he in e se hype bolic sine ans o ma ion o he g a i y model (K is jánsdó i 2012). Con en ionally, he loga i hm se es well in in he g a i y model speci ica ion. Use o he in e se hype bolic sine ans o ma ion a he han he loga i hm ans o ma ion allows o accoun ancy o ze os, which can be impo an in he s udy o small economies wi h limi ed da abases (K is jánsdó i 2012). The g a i y model speci ica ion used in his s udy is based on he speci ica ion by Be gs and (1985) in Equa ion (1). In Equa ion (1) PX is expo s om coun y i o j, and Yi ep esen s GDP in coun y i, and Y j ep esen s GDP in coun y j, A accoun s o addi ional ac o s, and he e o e m is u. PXij =β0Yjβ1Yjβ2Dijβ3Aijβ4uij (1) Equa ion (2) ep esen s expo s (EXP) as he dependen a iable, om coun y i o coun y j, o e ime . EXPij, =eγ0(Yi, )γ1Yj, γ2Dijγ3Aijγ4eζij, (2) Equa ion (3) ep esen s he model speci ica ion, when GDP has been inse ed o Y, DIS dis ance o D, and POP popula ion o A. EXPij, =eς0(GDPi, )ς1GDPj, ς2(POPi, )ς3POPj, ς4DISijς5eλij, (3) Equa ion (4) p esen s he model speci ica ion, a e aking loga i hm o all a iables. Equa ion (4) he e o e p esen s he log-linea o ma o he speci ica ion. lnEXPij, =ς0+ς1ln(GDPi, )+ς2lnGDPj, +ς3ln(POPi, )+ς4lnPOPj, +ς5lnDISij+uij, (4) Table 1shows he a iables used in he s udy, and summa y s a is ics a e p esen ed in Table 2. Table 1. Va iable De ini ion. FDI s ockij, FDI se ies o BOP and IIP agg ega es. Inwa d posi ion a yea -end US dolla , millions in hos coun y (j), o e ime ( ). OECD (2020). GDPi, G oss domes ic p oduc (GDP) cu en US$, in hos coun y (j). Running o e ime ( ). Wo ld Bank (2020). POPi, Popula ion, in sou ce coun y (i) a ime ( ). IMD (2020). SDi ij, Di e ence in he a ailabili y o skilled labo , be ween sou ce coun y (i) and hos coun y (j) o e ime ( ). IMD (2020). EUi, Dummy a iable accoun ing o he sou ce coun y (i) membe ship o he Eu opean Union, o e ime ( ). Eu opean Union (EU 2020). HOFSTEDE iHo s ede cul u al dis ance index o he sou ce coun y (i). Aðals einsson e al. (2011). Ho s ede and Bond (1988); Ho s ede (1980,2001). CREDITj, The coun y c edi a ing, in he hos coun y (j), o e ime ( ). IMD (2020). RISKj, In es men isk, in he hos coun y (j), o e ime ( ). IMD (2020). INSTj, The isk o poli ical ins abili y is e y low, in he hos coun y (i), o e ime ( ). IMD (2020). GMTj, Go e nmen e iciency, go e nmen decisions a e e ec i ely implemen ed, in he hos coun y (j), o e ime ( ). IMD (2020). J. Risk Financial Manag. 2021,14, 23 5 o 12 Table 2. Summa y S a is ics o he Basic Sample. Va iable Uni s Mean S d. De . Min Max FDIij, Iceland USD 187.7572 982.4527 −6.164 9538.254 FDIij, I eland US dolla s 132.8809 3273.049 −24652.05 20777.55 GDPi, US dolla s 8.56 ×1011 1.82 ×1012 3.78 ×1091.51 ×1013 POPi, Inhabi an s 103.9129 260.2633 0.279 1344.002 Skillsi, Index [0,10] 5.955366 1.313986 0 8.380953 EUi, EUi, ∈{0,1} 0.3965116 0.4894576 0 1 HOFSTEDEiIndex [0,100] 49.95874 8.732228 29.63903 66.84524 Ice_CREDITj, Index [0,10] 70.68182 12.4131 41 80.8 Ice_RISKj, Index [0,10] 84.10378 9.946038 64.39 92.13 Ice_INSTj, Index [0,10] 7.143074 3.09788 0 9.302325 Ice_GMTj, Index [0,10] 5.359459 2.281748 0 7.069767 I e_CREDITj, Index [0,10] 86.81818 7.189874 67.5 93.2 I e_RISKj, Index [0,10] 90.27111 5.384146 77.87 94.65 I e_INSTj, Index [0,10] 8.779427 0.9121318 6.32653 9.568627 I e_GMTj, Index [0,10] 5.123729 0.865086 3.772727 6.533333 The equa ions es ima es a e based on he g a i y model (Ma kusen 2004), hese a e he ollowing; sinh−1FDIij, =τ0+τ1ln(GDPi, )+τ2ln(POPi, )+τ3SDi ij, +τ4EUi, +τ5HOFSTEDEi+τ6CREDITj, +εij, (5) In Equa ion (5) Fo eign Di ec In es men (FDI) is he dependen a iable. FDI is ea ed wi h he in e se hype bolic sine unc ion (sinh −1 ) in o de o ake ze os and po en ial nega i e alues in o accoun . Then he explana o y a iables a e he con en ional g a i y model a iables o g oss domes ic p oduc (GDP) and ma ke size wi h popula ion (POP). Then SDi accoun s o skill di e ences be ween he sou ce coun y o in es men , and he hos coun y. EU is a dummy a iable o he Eu opean Union, aking he alue 1 i he sou ce coun y has EU membe ship and 0 i no . The HOFSTEDE a iable accoun s o cul u al alue o he sou ce coun y o in es men and C edi he C edi s a us in he hos coun y o in es men . Then he eg essions con inue and nex he RISK eplaces he CREDIT a iable, as p esen ed in Equa ion (6): sinh−1FDIij, =τ0+τ1ln(GDPi, )+τ2ln(POPi, )+τ3SDi ij, +τ4EUi, +τ5HOFSTEDEi+τ6RISKj, +εij, (6) Equa ion (6) con inues wi h FDI,GDP,POP and om he Knowledge Capi al model he e is he SDi a iable (Ca e al. 2001;Ma kusen 2004). Fu he mo e, by eplacing RISK wi h he INST a iable, he eg ession accoun s o isk in he hos coun y. sinh−1FDIij, =τ0+τ1ln(GDPi, )+τ2ln(POPi, )+τ3SDi ij, +τ4EUi, +τ5HOFSTEDEi+τ6INSTj, +εij, (7) J. Risk Financial Manag. 2021,14, 23 6 o 12 In Equa ion (7) he INST a iable accoun s o isk o poli ical ins abili y in he hos coun y o in es men . sinh−1FDIij, =τ0+τ1ln(GDPi, )+τ2ln(POPi, )+τ3SDi ij, +τ4EUi, +τ5HOFSTEDEi+τ6GMTj, +εij, (8) Finally, we es ima e equa ion wi h he GMT go e nmen e iciency a iable in Equa- ion (8). Then go e nmen e iciency (GMT) eplaces RISK, wi h go e nmen e iciency accoun ing o he go e nmen e iciency in he sou ce coun y o in es men . 4. Da a A o al o 25 Eu opean coun ies a e included in he se o da a, hese a e: Aus ia, Belgium, Czech Republic, Denma k, Es onia, Finland, F ance, Ge many, G eece, Hunga y, Iceland, I eland, Is ael, I aly, Luxembou g, Ne he lands, No way, Poland, Po ugal, Slo ak Republic, Slo enia, Spain, Sweden, Swi ze land, and he Uni ed Kingdom. Da a is on annual bases, epo ing alues o e e y yea . We use da ase ob ained om he OECD. “The O ganiza ion o Economic Co-ope a ion and De elopmen is an in e go e nmen al economic o ganiza ion, ounded in 1961 o s imula e economic p og ess and wo ld ade” (OECD 2020). Economis s ha e used OECD da ase o analyze he de e minan s o FDI (K is jánsdó i 2016a,2016b). FDI s ock j, is he FDI se ies o BOP and IIP agg ega es. Inwa d posi ion a yea -end US dolla , millions in hos coun y (j), o e ime ( ), ob ained om he OECD (2020). GDP i, is he g oss domes ic p oduc (GDP) cu en US$, in hos coun y (i). Running o e ime ( ), ob ained om Wo ld Bank (2020). POP i, is popula ion, ob ained om IMD (2020). SDi ij, he di e ence in he a ailabili y o skilled labo , be ween sou ce coun y and hos coun y o in es men , ob ained om IMD (2020). EU i, is he dummy a iable accoun ing o he sou ce coun y membe ship o he Eu opean Union, o e ime ( ), ob ained om ECB (2020). HOFSTEDE i is he Ho s ede (2001) cul u al dis ance index o he sou ce coun y, ob ained om Ho s ede (1980,2001), Ho s ede and Bond (1988), Aðals einsson e al. (2011). Da a on he Ho s ede cul u e a iable cap u es cul u al e ec s (Ho s ede 1980, 2001;Ho s ede and Bond 1988;K is jánsdó i e al. 2017,2020). The mos common e - sion o he Ho s ede index does no include da a on Iceland. We he e o e add da a o Iceland ob ained by Aðals einsson e al. (2011), applying he same ques ionnai e and da a p ocessing as Ho s ede. The Ho s ede measu es occasionally ake a alue o e 100 o he sample coun ies. We he e o e escale alues, so hey ake a maximum alue o 100. Then he i e measu es a e summed up, and di ided by 100 again, so he o e all Ho s ede index used he e uns om 0 o 100. CREDIT j, is he coun y c edi a ing, in he hos coun y, ob ained om he IMD (2020). The coun y c edi a ing a iable CREDIT accoun s o a ing on a scale o 0-100 assessed by he Ins i u ional In es o IMD (2020). Be o e applica ion, he CREDIT a iable is such ha we di ide all alues by 10, and i he e o e uns om ze o o 10. RISK j, is in es men isk, in he hos coun y, ob ained om he IMD (2020). The in es men RISK a iable measu es he Eu omoney coun y isk o e all (scale om 0–100) and is ob ained om he IMD (2020). The RISK a iable is di ided by 10, so i uns om 0–10. INST j, is he isk o poli ical ins abili y is e y low, in he hos coun y, ob ained om he IMD (2020). The a iable INST da a is om an execu i e su ey based on an index om ze o o 10 IMD In e na ional in Lausanne Swi ze land, collec s indica o s o a ious ac o s, including in as uc u e (IMD 2020). GMT j, is he go e nmen e iciency, go e nmen decisions a e e ec i ely imple- men ed, in he hos coun y, ob ained om he IMD (2020). The GMT a iable om an execu i e su ey based on an index om ze o o en (IMD 2020). The numbe o documen s analysed is e lec ed in he e e ence lis , lis ing 40 e e ences, including bo h da a iles and heo e ical documen s. The so wa e used is he STATA so wa e. The da a analysis me hod in ol es use o he g a i y model, accoun ing o economic size J. Risk Financial Manag. 2021,14, 23 7 o 12 and dis ance, which is pa icula ly use ul when conside ing coun ies wi h small economy size, like Iceland and I eland, geog aphically dis an om he cen e o Eu ope. 5. Reg ession Resul s The analyzed pe iod uns in wo subpe iods, he i s subpe iod uns om 2000–2007 and he second subpe iod om 2008–2010. The eg essions a e un on hese wo di e en subpe iods in o de o ge es ima es on he de e minan s o o eign di ec in es men (FDI), be o e and a e he global inancial c isis. Resul s a e ob ained by using he O dina y leas squa es (OLS) eg ession. When eading h ough Tables 3–6, he es ima ion esul s can be in e p e ed as he ollowing: Table 3. 2000–2007 ICELAND. Equa ion (5) Equa ion (6) Equa ion (7) Equa ion (8) Reg esso s FDI S ockij, FDI S ockij, FDI S ockij, FDI S ockij, GDPi, 1.426 *** (9.40) 1.506 *** (8.08) 1.436 *** (8.86) 1.429 *** (9.20) POPi, −0.855 ** (−7.56) −0.849 *** (−6.89) −0.860 *** (−7.33) −0.857 *** (−7.48) SDi ij, 0.193 (1.05) 0.452 *** (2.78) 0.193 (1.06) 0.191 (1.05) EUi, −0.981 *** (−3.30) −0.673 * (−1.94) −0.980 *** (−3.25) −0.981 *** (−3.26) HOFSTEDEi −0.128 *** (−8.63) −0.140 *** (−8.42) −0.129 *** (−8.87) −0.128 *** (−8.88) Ice_CREDITj, −0.002 (−0.07) Ice_RISKj, 0.029 (0.28) Ice_INSTj, 0.190 (0.31) Ice_GMTj, 0.122 (0.32) Cons an −26.693 *** (−5.31) −31.046 *** (−2.80) −28.796 *** (−3.79) −27.759 *** (−6.15) R-sq 0.4666 0.4908 0.4669 0.4669 Obs 172 131 172 172 Robus -s a is ics epo ed in pa en heses. *** Signi ican a he 1 pe cen le el. ** Signi ican a he 5 pe cen le el. * Signi ican a he 10 pe cen le el. Table 4. 2008–2010 ICELAND. Equa ion (5) Equa ion (6) Equa ion (7) Equa ion (8) Reg esso s FDI S ockij, FDI S ockij, FDI S ockij, FDI S ockij, GDPi, 1.359 *** (4.90) 1.361 *** (4.91) 1.359 *** (4.91) 1.357 *** (4.91) POPi, −0.926 *** (−4.67) −0.927 *** (−4.68) −0.926 *** (−4.70) −0.924 *** (−4.71) SDi ij, 0.006 (0.10) 0.001 (0.02) −0.001 (−0.01) 0.002 (0.03) J. Risk Financial Manag. 2021,14, 23 8 o 12 Table 4. Con . Equa ion (5) Equa ion (6) Equa ion (7) Equa ion (8) EUi, −0.437 (−0.95) −0.435 (−0.94) −0.434 (−0.94) −0.435 (−0.94) HOFSTEDEi −0.130 *** (−5.89) −0.130 *** (−5.90) −0.130 *** (−5.91 ) −0.130 *** (−5.91) Ice_CREDITj, −0.012 (−0.77) Ice_RISKj, −0.016 (−0.68) Ice_INSTj, −0.029 (−0.35) Ice_GMTj, −0.032 (−0.26) cons an −25.041 ** (−3.54) −24.559 ** (−3.40) −25.605 *** (−3.68) −25.560 *** (−3.68) R-sq 0.4251 0.4241 0.4217 0.4213 Obs 87 87 87 87 Robus -s a is ics epo ed in pa en heses. *** Signi ican a he 1 pe cen le el. ** Signi ican a he 5 pe cen le el. Table 5. 2000–2007 IRELAND. Equa ion (5) Equa ion (6) Equa ion (7) Equa ion (8) Reg esso s FDI S ockij, FDI S ockij, FDI S ockij, FDI S ockij, GDPi, 0.386 (0.61) 0.122 (0.19) 0.431 (0.66) 0.247 (0.40) POPi, −0.553 (−1.12) −0.389 (−0.80) −0.555 (−1.10) −0.419 (−0.87) SDi ij, −0.476 (−1.01) −0.391 (−0.85) −0.373 (−0.81) −0.295 (−0.64) EUi, −0.388 (−0.37) −0.981 (−0.91) −0.359 (−0.34) −0.464 (−0.43) HOFSTEDEi −0.018 (−0.29) −0.030 (−0.48) −0.016 (−0.26) −0.018 (−0.29) I e_CREDITj, −0.466 ** (−2.30) I e_RISKj, 0.21 (0.36) I e_INSTj, −8.673 ** (−2.31) I e_GMTj, 0.745 (0.79) cons an 34.632 (1.50) −19.718 (−0.36) 72.096 ** (1.98) −8.043 (−0.45) R-sq 0.0368 0.0146 0.0408 0.0093 Obs 168 160 168 168 Robus -s a is ics epo ed in pa en heses. ** Signi ican a he 5 pe cen le el.