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A New FDI Potential Index: Design and Application to the EU Regions

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  • Adolfo Maza
  • José Villaverde

Abstract

The aim of this paper is to propose a new way of computing the FDI Potential Index to address the issue of FDI attractiveness at the EU regional level. This new index employs a sound way of selecting the variables involved in its construction, for which a factor analysis is performed. Accordingly, six factors ("economic potential", "market size", "labour situation", "technological progress", "labour regulation" and "competitiveness") are identified. Next, by applying the methodology of composite indicators and considering different weighting and aggregation schemes, three versions (un-weighted linear, weighted linear and weighted geometric) of the new FDI Potential Index are computed. Afterwards, the comparison of the weighted linear version of the Potential Index with the conventional FDI Performance Index allows us to apply the United Nations Conference on Trade and Development (UNCTAD) FDI typology. The results reveal considerable heterogeneity among EU regions in terms of FDI attractiveness, and that regions belonging to the same group of the UNCTAD classification are highly concentrated from a geographical perspective. In view of these findings, we compute an additional version of both the FDI Potential and Performance indices, in which the geographical location of each region plays a key role. Based on these spatial indices, some general policy implications are drawn.

Suggested Citation

  • Adolfo Maza & José Villaverde, 2015. "A New FDI Potential Index: Design and Application to the EU Regions," European Planning Studies, Taylor & Francis Journals, vol. 23(12), pages 2535-2565, December.
    • Handle: RePEc:taf:eurpls:v:23:y:2015:i:12:p:2535-2565
    DOI: 10.1080/09654313.2015.1020771
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    References listed on IDEAS

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    1. Wolfgang Polasek & Richard Sellner, 2013. "The Does Globalization Affect Regional Growth? Evidence for NUTS-2 Regions in EU-27," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 1, pages 23-65, March.
    2. Polasek, Wolfgang & Sellner, Richard, 2010. "Spatial Chow-Lin Methods for Data Completion in Econometric Flow Models," Economics Series 255, Institute for Advanced Studies.
    3. Nicholas Phelps & Philip Raines (ed.), 2003. "The New Competition for Inward Investment," Books, Edward Elgar Publishing, number 2500.
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    Cited by:

    1. Riccardo Crescenzi & Carlo Pietrobelli & Roberta Rabellotti, 2016. "Regional strategic assets and the location strategies of emerging countries’ multinationals in Europe," European Planning Studies, Taylor & Francis Journals, vol. 24(4), pages 645-667, April.
    2. Dell'Anno, Roberto & Strat, Vasile Alecsandru, 2018. "The potential of the EU economies in attracting FDI – A composite index based approach," MPRA Paper 93384, University Library of Munich, Germany.
    3. Loles Añón Higón & Alfonso Díez-Minguela, 2021. "Location, Location, Location: Do Universities Matter for Foreign R&D?," Working Papers 2109, Department of Applied Economics II, Universidad de Valencia.
    4. World Bank Group, 2018. "Global Investment Competitiveness Report 2017/2018," World Bank Publications - Books, The World Bank Group, number 28493.
    5. Sebastian Tocar, 2019. "Culture-specific Investment Attractiveness Index: An Original Composite Indicator," International Journal of Economics and Financial Issues, Econjournals, vol. 9(4), pages 203-211.
    6. Michael Touchton, 2023. "Government Checks and Balances, Policy Credibility, and Foreign Direct Investment: A Cross-National Investigation," Economies, MDPI, vol. 11(10), pages 1-15, October.
    7. Kalina Durova, 2018. "The impact of European Union funds on the economies of the Central and Eastern European countries," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 95-112.
    8. Gutiérrez-Portilla, Paula & Maza, Adolfo & Villaverde, José, 2019. "A spatial approach to the FDI-growth nexus in Spain: Dealing with the headquarters effect," International Business Review, Elsevier, vol. 28(6), pages 1-1.
    9. World Bank [WB], 2017. "Global Investment Competitiveness Report 2017/2018 : Foreign Investor Perspectives and Policy Implications," Working Papers id:12293, eSocialSciences.
    10. Mariana Sehleanu, 2019. "Analysis Of Foreign Participation In The Share Capital Of Companies From The Counties Of North-West Region Of Romania," Oradea Journal of Business and Economics, University of Oradea, Faculty of Economics, vol. 4(1), pages 7-16, March.
    11. Dario Musolino & Wim Meester & Piet Pellenbarg, 2022. "Stated locational preferences of Italian entrepreneurs: The underlying location factors," Regional Science Policy & Practice, Wiley Blackwell, vol. 14(4), pages 1005-1021, August.

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