Institutional Factors of Investment Climate

The following paper is aimed at discovering the institutional influence on investment climate, an important factor for any modern economy. For that purpose, widely renowned “Doing Business” index is chosen as the indicator for investment climate, which allows for separating investment climate as institutional characteristic from prosperity-related factors. In doing so, this paper complements the existing body of work on investment climate, where institutional component remains largely confounded with other sides of economic development. It is also shown by using relevant literature, that investment climate can be understood as a characteristic of economy-wise transactional costs as defined by Coase. An assumption is made that the favourable investment climate is reached by building a European-style neoliberal system of institutions, distinguished by high quality of human capital, sound property rights and relatively free press, which also shows commitment to democratic ideal of pluralism in society. An additional specification, including information on dominant values in various societies is also used to discover if predominance of European values increases investment climate. The study shows the positive effect of high quality of human capital and property rights. However, freedom of speech is revealed to be counter-productive in this regard. The values predominant in the country do not seem to be to incur significant influence on investment climate.