Economic Freedom and FDI: The Role of Corruption and Military Spending in Central and Eastern Europe

This study examines how economic freedom affects FDI in the CEE, emphasizing corruption and military spending within a changing geoeconomic environment. Using a panel-ARDL approach for 1996–2022, the results reveal time-varying effects. In the short-run, lower freedom and stronger corruption control attract FDI (0.28% and 5.8%, respectively), supporting the sand-the-wheels hypothesis, while military spending also has a significantly positive effect. However, in the long-run, greater freedom and weaker corruption control increase FDI (0.1% and −1.3%, respectively), consistent with the grease-the-wheels hypothesis. The economic freedom pillars indicate mixed evidence. These findings reflect evolving institutional roles in CEE’s geoeconomic transformation.