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

C Catalunya         —■—Baden-Württemberg

—⅛—Lombardia

Figure 10: Human resources in R&D (as a percentage of the population)
(Source EUROSTAT - Calculus: Authors)

4. Regional attractiveness: an empirical analysis

The purpose of this section is to propose an empirical analysis to identify the determinants
affecting the FDI inflows. The question we want to address is the following: do the determinants for
the six sectors we selected play a similar role across the three regions to attract FDI? If the answer is
positive, then geographical idiosyncrasies, which exist across regions, do not matter for the location of
FDI. The results of this work show that the answer is negative. Therefore, there are local
characteristics associated with the determinants at work. These may be limited in time and reflect a
different stage of development of the regional economies. Nevertheless, our work emphasises the role
of market size as a robust FDI determinant. As for the five others, our results may be interpreted as an
evidence of their weak influence or as an evidence of a variety of patterns to attract FDI.

This econometric exercise focuses on the determinants at the regional and sector level likely to
affect foreign investors’ decisions. To our knowledge, this is the first study carried out at the regional
and sector levels. Our expectations are to obtain more insights at this level of disaggregation.

We built a database focusing on the FDI inflows and its determinants at the regional and sector
levels. We collected data from various regional statistics offices and from Eurostat for the period
1995-2003. At the moment, there are no complete and reliable information at regional level before
1995, the year when Eurostat initiated the collection of data at regional level. Once the data by year

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