New Empirical Evidence on the Drivers of Foreign Direct Investment in the European Union Countries

For a number of decades, the European Union has witnessed an intense global competition to attract foreign direct investment (FDI). This competition has led to significant inflows and outflows in the member states, with positive implications for economic growth, employment and productivity for the host and sending countries. The paper uses data from 2005 - 2017 to identify the main drivers of FDI in the EU separately for sending and receiving, Euro area and Non-Euro countries. Analysis focuses on finding the levers that promote the Union in its entirety as a major competitor for FDI. An empirical analysis is conducted for selected variables (economic development, taxation, unit labour costs, trade openness, interest rate differential, macroeconomic stability, infrastructure and competitiveness) using the two-step System Generalised Method of Moments (GW). The results are robust and consistent with the supporting literature.