FDI Determinants in the European Union: Empirical Application

Alena Dorakh


The purpose of this paper is to verify and estimate, besides gravity factors, the individual country specific determinants in influencing FDI inflows to the selected countries. More than standard factors, we revile additional factors, which could explain the investment in the EU. In this context, we take into account the neighboring effects as an important motive for FDI inflows last time. Our findings verify that efficiency-seeking and more complex form of the FDI determinants is more pronounced strategy now in the new EU member states than market-seeking FDI that is more relevant for the whole EU. Moreover, in addition to the existing literature, we argue that a variation in FDI determined by the EU-2004 enlargement started earlier than official date and remains its impact. Supposedly, a significant surrounding market potential could be for the new EU member states an evidence of the complex vertical FDI determinant today.


foreign direct investment, the new EU member states, country-specific determinants of FDI, panel data, fixed effects, neighboring effects.

JEL Codes

F21; F23; O52.

Full Text:



Asiedu, E., 2002. On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different? World Development, 30(1), 107-119. http://dx.doi.org/10.1016/S0305-750X(01)00100-0

Asiedu, E., 2006. Foreign Direct Investment in Africa: The Role of Natural Resources, Market Size, Government Policy, Institutions and Political Instability. The World Economy, 29(1), 63-77. http://dx.doi.org/10.1111/j.1467-9701.2006.00758.x

Baltagi, B. H., Egger, P. H., and Pfafermayr, M., 2007. Estimating Regional Trade Agreement Effects on FDI in an Interdependent World Syracuse University – Maxwell School of Citizenship and Public Affairs Center for Policy Research Working Paper, 100. http://dx.doi.org/10.2139/ssrn.1809094

Bergstrand, J. H., and Egger, P., 2007. A knowledge-and-physical-capital model of international trade flows, foreign direct investment, and multinational enterprises. Journal of International Economics, 73(2), 278-308. http://dx.doi.org/10.1016/j.jinteco.2007.03.004

Bevan, A., Estrin, S., and Meyer, K., 2004. Foreign investment location and institutional development in transition economies. International Business Review, 13(1), 43-64. http://dx.doi.org/10.1016/j.ibusrev.2003.05.005

Blonigen, B. A., Davies, R. B., Waddell, G. R., and Naughton, H. T., 2007. FDI in space: Spatial autoregressive relationships in foreign direct investment. European Economic Review, 51(5), 1303-1325. http://dx.doi.org/10.1016/j.euroecorev.2006.08.006

Bruno, R., Campos, N., Estrin, S., and Meng, T., 2017. Economic integration, foreign investment and international trade: the effects of membership of the European Union. CEP Discussion Papers (CEPDP1518).

Cardamone, P., and Scoppola, M., 2012. The Impact of EU Preferential Trade Agreements on Foreign Direct Investment. The World Economy, 35(11), 1473-1501. http://dx.doi.org/10.1111/j.1467-9701.2012.01434.x

Cieslik, A., 2015. Export versus FDI in Cournot duopoly framework. Working Papers, 11. http://www.badania-gospodarcze.pl/images/Working_Papers/2015_No_11.pdf.

Cieślik, A., 2017. Determinants of MNE Activity in Poland: The Case of Firms from EU-15. Entrepreneurial Business and Economics Review, 5(1), 151-167. http://dx.doi.org/10.15678/EBER.2017.050109

Dunning, J. H., and Lundan, S. M., 2008. Institutions and the OLI paradigm of the multinational enterprise. Asia Pacific Journal of Management, 25(4), 573-593. http://dx.doi.org/10.1007/s10490-007-9074-z

Helpman, E., 2006. Trade, FDI, and the Organization of Firms. Journal of Economic Literature, 44(3), 589-630. http://dx.doi.org/10.3386/w12091

Jirasavetakul, L.-B. F., and Rahman, J., 2018. Foreign Direct Investment in New Member State of the EU and Western Balkans: Taking Stock and Assessing Prospects: INTERNATIONAL MONETARY FUND.

Markusen, J. R., 2000. Foreign Direct Investment. CIES Working Paper, 19. http://dx.doi.org/10.2139/ssrn.231202

Markusen, J. R., 2002. Multinational Firms and the Theory of International Trade: The MIT Press. http://dx.doi.org/10.7551/mitpress/4797.001.0001

Markusen, J. R., 2013. Multinational firms. In D. Bernhofen, R. Falvey, D. Greenaway and U. Kreickemeier (Eds.), Palgrave handbook of international trade (pp. 236–262). Basingstoke: Palgrave Macmillan.

Nwaogu, U. G., and Ryan, M., 2014. Spatial Interdependence in US Outward FDI into Africa, Latin America and the Caribbean. The World Economy, 37(9), 1267-1289. http://dx.doi.org/10.1111/twec.12118

Sahiti, A., Ahmeti, S., and Ismajli, H., 2018. A Review of Empirical Studies on FDI Determinants. Baltic Journal of Real Estate Economics and Construction Management, 6(1), 37. http://dx.doi.org/10.1515/bjreecm-2018-0003

Santos Silva, J. M. C., and Tenreyro, S., 2006. The Log of Gravity. The Review of Economics and Statistics, 88(4), 641-658. http://dx.doi.org/10.1162/rest.88.4.641

Smarzynska, B. K., and Wei, L. J., 2000. Corruption and Composition of Foreign Direct Investment: Firm-Level Evidence. World Bank Policy Research Working Paper, 2360. https://openknowledge.worldbank.org/bitstream/handle/10986/19836/multi_page.pdf.

UNCTAD, 2018. World investment report 2018. https://unctad.org/en/PublicationsLibrary/wir2018_en.pdf.

Wach, K., and Wojciechowski, L., 2016. Determinants of inward FDI into Visegrad countries: empirical evidence based on panel data for the years 2000–2012. Economics and Business Review EBR, 16(1), 34-52. http://dx.doi.org/10.18559/ebr.2016.1.3

Welfens, P. J. J., and Baier, F. J., 2018. BREXIT and Foreign Direct Investment: Key Issues and New Empirical Findings. International Journal of Financial Studies, 6(2). http://dx.doi.org/10.3390/ijfs6020046

DOI: http://dx.doi.org/10.47743/saeb-2020-0012