| Abstract [eng] |
The main purpose of this master’s thesis is to examine how the size of national shadow economies affects foreign direct investment (FDI) inflows and how this relationship differs between developed and emerging economies. The work consists of four main parts; the analysis of the literature, the empirical research methodology, the analysis of econometric results, conclusions and recommendations. The literature review discusses key concepts of the shadow economy and FDI, highlights the role of institutional quality, trade openness, corporate taxation and development level, and summarises mixed empirical findings on the impact of informality on FDI. The empirical part uses panel data for 30 countries (15 developed and 15 emerging) over the period 2000–2020, applying fixed-effects regressions with FDI inflows as the dependent variable, the shadow economy as the main explanatory variable, and four control variables. The results show no uniform negative relationship between the shadow economy and FDI: the effect is insignificant in the full sample and in developed economies, but becomes positive and only weakly significant in emerging economies. Institutional quality is the most robust determinant of FDI across all specifications, while in emerging economies GDP per capita and corporate tax rates also matter, and Granger tests indicate a one-way temporal effect running from FDI to the shadow economy. In line with these findings, the thesis recommends that policymakers prioritise improvements in governance and broader development conditions rather than focusing solely on the reduction of the shadow economy, and suggests that future research should divide FDI by type and sector to capture more nuanced effects. |
