- Business/investment climate relates to the institutional framework. Regulatory, bureaucratic and
judicial environments are now considered as very important criteria for investment and
development.
- Trade barriers/openness is somewhat an uncertain determinant. A weak openness tends to favor
horizontal FDI and deter vertical FDI.
1.3 Methodological motivations and objectives
This paper focuses on the question related to the benefits expected by the foreign firms from
investing in a host economy. In other words, our aim is to find out the determinants offered by the host
economy that turned out to attract the types of FDI flows recorded over a historical period (1995-
2003). The originality of this work comes from two forms of desegregation: we build and exploit
econometrically a database including data on FDI and potential determinants disaggregated at both the
regional and sector levels. The objectives of this paper are then threefold:
1. We want to analyze the FDI performance by sectors in three European regions: Baden-
Württemberg, Catalunya, and Lombardia over the period 1995 to 2003.
2. Then we attempt to identify the determinants of each region’s FDI performance over the
sample period.
3. We finally try to find out insights on FDI determinants at the sector level.
The motivation for studying FDI from a regional standpoint is the same as for most regional
works: a lot of interesting characteristics or changes are simply hidden at more aggregate levels. More
importantly, FDI determinants and effects may be localized and, hence, a regional analysis may be
more appropriate to obtain better-grounded results.
The absence of regional analysis of FDI in the literature has a simple explanation: the lack of
data. Some effort has been made to collect and streamline data for European regions by regional
statistical offices. Most of this data starts from 1995. For most of the other regional variables, Eurostat
collects data from 1995. This means that the development of time-series makes now possible to start
this kind of regional study even though the time period still remains a bit short to obtain results with
confidence.
We have chosen only three European regions (Baden-Württemberg, Catalunya, Lombardia) for
three reasons:
- These three regions belong to a club called Four Motors for Europe and share common
characteristics among them (see Appendix).
- These three regions belong to countries that have close corporate tax rates (~35%), which rules out
tax competition as a determinant of FDI location across these three regions and enables us to focus
on other determinants ( OECD statistics1 ).
1 Available at ://www.taxpolicycenter.org