Evidence on the Determinants of Foreign Direct Investment: The Case of Three European Regions

provided by Research Papers in Economics

Evidence on the Determinants of Foreign Direct Investment:
The Case of Three European Regions

Lionel Artige

(Universitat Autdnoma de Barcelona)

Rosella Nicolini

(Instituto de Analisis Economico, CSIC)

November 2005^

Abstract

This study aims at analyzing the determinants of FDI (foreign direct
investment) inflows for a group of European regions. The originality of this
approach lies in the use of disaggregated regional data. First, we develop a
qualitative description of our database and discuss the importance of the
macroeconomic determinants in attracting FDI. Then, we provide an
econometric exercise to identify the potential determinants of FDI. In spite
of choosing regions presenting economic similarities, we show that regional
FDI inflows rely on a combination of factors that differs from one region to
another.

Keywords: Foreign Direct Investment, Productivity, Regions.

JEL: F20, O47, R10.

1. Introduction

Foreign direct investment (FDI) has widely become a byword for efficient investment, job
creation, high wages and technological transfers. Most governments in the world have promoted
generous policies to attract FDI on their soil.

Foreign direct investment is the capital transaction that a “direct investor” carries out in a
foreign “direct investment enterprise” (affiliate) to obtain a lasting interest in this foreign firm and a

^♦ We are grateful to Isabel Busom and Rosina Moreno for comments and suggestions. This study is part of a project
entitled “La situacio de la innovacio a Catalunya” coordinated by Isabel Busom and financed by CIDEM. We thank
CIDEM, IDESCAT, Istituto per il Commercio Estero, Secretaria General del Comercio Exterior, Statistiches Landesamt
Baden- Württemberg and Ufficio Italiano Cambi for data they provided. Any remaining error is our responsibility. Rosella
Nicolini’s research is supported by a Ramon y Cajal contract of the Spanish Ministerio de Ciencia y Tecnologia.

Corresponding author: Rosella Nicolini, Instituto de Analisis Economico, Campus de la UAB, 08193 Bellaterra
(Barcelona), Spain. Ph. +345806612, Fax: +345801452. E-mail: [email protected] .

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