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Greenfield Foreign Direct Investment and Structural Reforms in Europe: what factors determine investments?

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  • Erik Canton
  • Irune Solera

Abstract

Greenfield FDI flows into EU countries account for a non-negligible share of total EU FDI. They create new capital assets and additional production capacity which are important elements to support the transition to a stronger European growth path. This project investigates determinants of Greenfield FDI flows into the EU countries using sectoral data on bilateral greenfield FDI flows and associated job creation for the 2003-2014 period. The dataset covers the 28 EU countries and also includes as country of origin the main non-EU investors. A gravity model explaining FDI from distance indicators and policy variables is built, while controlling for other important factors, employing Heckman two-step selection procedure. The results suggest that the business climate (from World Bank's Doing Business) and product market regulations (from OECD's PMR) are important determinants of greenfield investment in the EU. This project provides additional evidence on the importance of removing unnecessary regulatory barriers to investment and could help in the discussion on the Investment Plan for Europe.

Suggested Citation

  • Erik Canton & Irune Solera, 2016. "Greenfield Foreign Direct Investment and Structural Reforms in Europe: what factors determine investments?," European Economy - Discussion Papers 033, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:dispap:033
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    Citations

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    Cited by:

    1. Jorge Durán, 2019. "FDI and Investment Uncertainty in the Baltics," European Economy - Economic Briefs 043, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. Elheddad, Mohamed, 2019. "Foreign direct investment and domestic investment: Do oil sectors matter? Evidence from oil-exporting Gulf Cooperation Council economies," Journal of Economics and Business, Elsevier, vol. 103(C), pages 1-12.
    3. Mariam Camarero & Laura Montolio & Cecilio Tamarit, 2020. "Determinants of FDI for Spanish regions: evidence using stock data," Empirical Economics, Springer, vol. 59(6), pages 2779-2820, December.
    4. Wildmer Daniel Gregori & Michela Nardo, 2021. "The effect of restrictive measures on cross‐border investment in the European Union," The World Economy, Wiley Blackwell, vol. 44(7), pages 1914-1943, July.
    5. Zaman, Gheorghe & Georgescu, George, 2016. "Stabilitatea financiară a României. Determinanți și proiecții pentru următoarele două decenii [Financial stability in Romania. Determinants and projections for the two next decades]," MPRA Paper 96078, University Library of Munich, Germany.
    6. Stojanović Jovana & Srbinoski Bojan & Denčić-Mihajlov Ksenija, 2022. "Do Audit and Accounting Practices Matter for Greenfield FDI Inflows?," Economic Themes, Sciendo, vol. 60(1), pages 41-56, March.
    7. MARSCHINSKI Robert & DE AMORES HERNANDEZ Antonio & AMOROSO Sara & BAUER Peter & CARDANI Roberta & CSEFALVAY Zoltan & GENTY Aurelien & GKOTSIS Petros & GREGORI Wildmer & GRASSANO Nicola & HERNANDEZ GUE, 2021. "EU competitiveness: recent trends, drivers, and links to economic policy: A Synthesis Report," JRC Research Reports JRC123232, Joint Research Centre.
    8. Emodi, Nnaemeka Vincent & Wade, Belinda & Rekker, Saphira & Greig, Chris, 2022. "A systematic review of barriers to greenfield investment in decarbonisation solutions," Renewable and Sustainable Energy Reviews, Elsevier, vol. 165(C).

    More about this item

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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