We investigate the factors attracting FDI into highly diversified Russian regions during the phase of transition, and verify the impact of transition experience on the current FDI inflow. Using cross-sectional and panel data, we demonstrate that the highly inhomogeneous investment pattern is explained, in addition to classical demand factors, by specific economic and socio-institutional regional characteristics. Russia appears as an idiosyncratic country where foreign investors seek a stable social and institutional context. Using recent FDI data we show that transition experiences influence current FDI inflow, particularly when the strength of the institutional environment and availability of infrastructures are taken into account.

Background: The links between pollution, institutions, and economic growth may be not so univocal as argued in the literature, as these factors may influence each other since some reverse causality may exist between them. The understanding of this relationship is important for identifying appropriate policies for sustainable development. Methods: We investigate the long-run relationship between pollution, institutions, and economic growth, considering as variables carbon dioxide emissions, rule of law, and income. The model offers an analysis of causality direction using a panel-VAR approach for the period 1996-2010 for 33 high-income countries that include advanced, emerging, and former-transition economies.Results: The results demonstrate a positive reverse causality relationship between the rule of law and income, indicating that higher income implies stronger rule of law and vice versa. The rule of law is found to have a negative relationship with pollution, confirming that the enforcement of rules is "a conditio sine qua non" to control emissions. No causality relationship is found for pollution and income that can be due to the different stages of economic development of emerging, former-transition, and developed economies, implying heterogeneity in their environmental protection policies. Conclusions: We argue that the rule of law matters both for economic growth and environment, working as a go-between and creating a win-win situation, where stronger institutions increase the levels of income and vice versa. In order to enhance sustainable development, a policy maker should allocate additional resources for both monitoring the application of the rule of law and its enforcement.

Abstract:The aim of this work is to provide new evidence on the factors that determine the fl ow of FDI among transition countries. The analysis takes into consideration the period of most intense transition and post-transition (1994)(1995)(1996)(1997)(1998)(1999)(2000)(2001)(2002) of 26 former socialist countries. The empirical estimates enable us to draw two main conclusions: fi rst classical locational FDI factors maintain their role in the context of transition countries, and, second, that FDI are infl uenced by specifi c market and institutional factors. Among market variables, relatively higher labour costs surprisingly do not constitute an obstacle for foreign investment. We fi nd that variables refl ecting market stabilising institutions play a more important role than those representing market creating institutions. Although, there is a certain tolerance of foreign investors towards weak institutional environment, we demonstrate that, to attract FDI, countries should reinforce their macroeconomic stability by focusing on market stabilising institutions.

In response to recently growing literature investigating the relationship between environment and institutions, this study investigates how rule of law influences the level of income at the turning point of the Environmental Kuznets Curve (EKC). Using an alternative specification of EKC that avoids nonlinear transformation of potentially nonstationary regressors, investigated by Bradford et al. (2005) and Leitão (2010), we find the evidence for the EKC in European countries for carbon emissions. Our results find a negative relationship between pollution and rule of law, demonstrating that when rule of law is strong, the turning point of the EKC occurs at a lower level of income per capita, thus, decreasing emissions. In terms of policy implication, our study suggests that institutional reinforcement should deserve close attention in designing and enforcing policies that limit environmental degradation.

Abstract:The paper gives new insights into the environmental taxation policy, demonstrating the existence of an inverse U-shaped relationship between environmental taxation and income in European countries. Our findings reveal this relationship to be influenced by enforcement of the rule of law, which contributes to shifting the turning point on the curve to lower income levels. We show that former transition economies have not reached the turning point due to weak institutions. To achieve the goal of sustainable development, the European Environment Agency's Environmental Taxation Reform, proposing to shift taxation from "goods" to "bads", should be accompanied by effective enforcement or the rule of law. The heterogeneity found between market-based and former transition European countries demonstrates the existence of problems at the EU-level in the coordination of environmental policies and enforcing the rule of law. In addition, the analysis of the determinants of environmental taxation points to the importance of factors related to consumption and production, governance, environmental quality, oil price shocks and the shift of environmental policy in European countries.