Discussion

149 Solution 2n: ~Welfare System * ~Flexible Labor Market * ~Education Quality *

~Income * Institutional Volatility

This solution only covers the case of Moldova, which is institutionally characterized by the absence of a welfare system, the absence of flexible labor markets, the absence of educational attainment and institutional volatility. In terms of the latter, Moldova can be characterized as a politically unstable country, with significant regime changes (Roper, 2008) and high political and party volatility (Lane, J.-E. & Ersson, 2007). Together with the overall weak performance of the economy of Moldova, the environment is highly unattractive for FDI.

Solution 3n: ~Strong PR * ~Welfare System * ~Flexible Labor Market * ~Education Quality * ~Income

The solution is similar to the first and includes the single peripheral condition of the absence of strong property rights. The exception here is that institutional volatility is not included in the solution term. Here, countries like Tajikistan and Uzbekistan are representative cases, both of which seemed to have failed to develop a clear comparative institutional advantage.

150 institutions are represented in three solution terms respectively. These core institutions are strong property rights, the quality of education and the absence of institutional volatility. In addition, the flexibility of labor market institutions was part of two solution terms and is also considered a relevant core institution. At the same time, the analysis discovered some diversity around these core institutions.

For example, Solution 3, 4 and 5 all combined strong property rights with other institutional conditions conducive to their respective comparative institutional advantage. Locations attractive for the moderately complex activities of global value chains, such as the Czech Republic and Hungary, were identified with flexible labor markets. In contrast, for the more service intensive economy of Estonia, FDI was attracted by the core institution of property rights in combination with education quality. This suggests the presence of some core institutions which are quite in line with the DME-type structure. Hence, it is possible that governments will continue to strengthen these core institutions in order to secure further FDI. This would identify FDI attraction as a crucial isomorphic pressure, i.e., source of convergence to a form of ‘liberal dependency’ (King & Sznajder, 2006; Nӧlke & Vliegenthart, 2009).

In the case of configurations that deter FDI inflows, the findings show an even higher density of core conditions that reflect the absence of institutional conditions. This is in line with existing studies that have emphasized the problems MNEs face in contexts with institutional voids in several different areas of the institutional environment (Khanna & Palepu, 2010). While deficiencies in individual areas of the institutional system can be reduced through strategic agency (Cantwell, Dunning &

Lundan, 2010), broader institutional voids make it difficult to justify investments due to increasing costs of coping with often unforeseen difficulties.

The second tentative proposition was that the volatility of an institutional configuration has a negative impact on institutional complementarity and, thus, reduces FDI attractiveness. This was argued to be especially crucial in the comparatively volatile markets of post-transition economies. The QCA analysis confirmed the relevance of institutional volatility. The absence of institutional volatility was found to be part of three sufficient configurations for FDI attraction. I argued that in the case of Ukraine and Belarus, the stability could be explainable by the status-quo interests of the government. Such an artificial stability might be

151 attractive to some forms of FDI (see Hecock & Jepsen, 2014). However, for the other two solutions, it is very possible that institutional complementarities have led to a stabilization of their trajectories.

Another interesting finding was discovered when exploring the negation of FDI attractiveness. Here, institutional volatility was found to be a necessary condition.

Thus, institutional volatility alone may have a strong effect on the FDI unattractiveness of a country, acting as gatekeeper for FDI in countries that have not yet established sufficient institutional complementarities. This finding also highlights the advantage of QCA over regression methodologies as the latter could have not uncovered the asymmetric role of institutional volatility for FDI attractiveness and unattractiveness respectively.

In the context of these findings, it seems relevant to think about the sources of institutional volatility with reference to the empirical patterns discovered. In the analysis of sufficiency for not being an FDI attractive country, the condition of institutional volatility always appeared in conjunction with a weak welfare state. As mentioned before, it is possible that low-redistribution regimes result in considerable social tensions. Thus, a weak welfare and taxation system may be conducive for institutional volatility as it generates societal discontent with existing institutions. Rodrik (1998) has emphasized that the absence of social security is likely to enhance societal conflicts and struggle, and that this can reduce the resilience of countries to economic shocks. MNEs are less likely to invest in such shock-prone environments. The possibility of the welfare state as a balancing device between the economic and social pressures was also outlined by the analysis of sufficiency. Even though the absence of a strong welfare state was identified as a core institution, most solution terms showed the presence of a strong welfare state, and with it a higher degree of taxation. This further supports the idea that MNEs may expect that the absence of a welfare state could harm their operations in the long-term.

In summary, this paper presented evidence for the existence of core institutions in the post-transition context, as well as for the relevance of institutional volatility in determining FDI attractiveness. The core limitations of this study are the limited scope of the utilized institutional data and the inductive nature of the QCA method (Seawright, 2005). Future research could take a broader basis of institutional data

152 and combine the QCA method with regression methods for quantitative triangulation. Moreover, there is need for future research in two distinct directions.

First, the possibility that FDI can act as an isomorphic pressure that guides institutional transformations in the post-transition context towards core institutions offers interesting research opportunities; these have not ceased to be relevant in the post-transition phase. Second, and in connection with the above, future studies are needed to evaluate the link between weak welfare systems and institutional volatility in relation to MNE activity. How much institutional volatility can MNEs tolerate? And are MNEs actively supporting the reproduction of social institutions for reasons of stability? These questions are of high interests for scholars and policy-makers alike.

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