The Impact of Economic Freedom on the Attraction of Foreign Direct Investment in the Baltics

In our increasingly globalized economy, global competitiveness of countries and means to measure it gain increasing significance, for which one the biggest motivating forces is ability to improve chances for attracting foreign direct investment (FDI), which in turn is a very substantial factor for increasing prosperity. One of the ways to measure it is by comparing an extent of economic freedom that countries have, which as surveys show can also largely explain differences in living standards across the world. The purpose of this study was to examine the effect of economic freedom on the attraction of FDI in the Baltics. By using the Index of Economic Freedom with its 10 components, and comparing the historic results of economic freedom in the economically homogenous Baltic states with their attracted foreign FDI over the years, it becomes evident that economic freedom has had an impact on promotion of these investments, which also partly can be explained with differences in the enforcement of intellectual property rights.