Fdi Integration in an Unstable Institutional Environment: the Case of Bulgaria

Abstract: Studies of the impact of FDI on the recipient country’s economy have identified the establishment of backward linkages with local companies as a main channel for the realisation of positive spillovers. The aim of this paper is to investigate the determinants of the European Union investors’ choice of suppliers in Bulgaria. The analysis accounts for potential differences in factors influencing the general preference for the type of supplier (local or foreign) of the foreign companies and the choice of providers of strategic inputs. The explicative factors considered include the investment characteristics and objectives usually found in FDI studies but, drawing on the new-institutional economics, the analysis is broadened to introduce the influence of the institutional environment as well. The paper is based on an extensive firm-level survey of EU manufacturing firms established in Bulgaria. Results show that access to local networks, subsidiary’s autonomy as well the quality of the institutional framework influence the foreign companies’ choice of partners but that the main determining factors are different depending on the type of supplier considered.