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An Empirical Analysis of Inward Foreign Direct Investment Flows in the EU with Emphasis on the Market Enlargement Hypothesis

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  • Kyriacos Aristotelous
  • Stilianos Fountas

Abstract

We use a cross-section, time-series approach to study the determinants of foreign direct investment (FDI) in the European Union (EU) with particular emphasis on the expectations of a single market following the Single European Act of 1987. Using annual data from the 1980s and early 1990s, we investigate the determinants of US and Japanese FDI in the EU by pooling the data by the host country. We find strong evidence in favour of a single market effect where the anticipation of a larger market size due to a barriers free European market leads to an increase in the inflows of FDI. In addition, our estimation results show that FDI flows in the EU also depend on market size and the real exchange rate (as a proxy of relative labour costs). Copyright 1996 BPL.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Common Market Studies.

Volume (Year): 34 (1996)
Issue (Month): 4 (December)
Pages: 571-583

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Handle: RePEc:bla:jcmkts:v:34:y:1996:i:4:p:571-583

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Cited by:
  1. Görg, Holger, 2000. "Fragmentation and trade : US inward processing trade in the EU," Open Access publications from Kiel Institute for the World Economy info:hdl:10419/2491, Kiel Institute for the World Economy.
  2. Peter J. Buckley & Jeremy Clegg & Nicolas Forsans & Kevin T. Reilly, 2007. "A Simple and Flexible Dynamic Approach to Foreign Direct Investment Growth: The Canada-United States Relationship in the Context of Free Trade," The World Economy, Wiley Blackwell, vol. 30(2), pages 267-291, 02.
  3. Cuyvers L. & Plasmans J. & Soeng R. & Van den Bulcke D., 2008. "Determinants of Foreign Direct Investment in Cambodia: Country-Specific Factor Differentials," Working Papers 2008003, University of Antwerp, Faculty of Applied Economics.
  4. Pavelin, Stephen, 2001. "Firm Interdependence In Foreign Production: Leading UK Firms in 1986 and 1993," CEPR Discussion Papers 2921, C.E.P.R. Discussion Papers.
  5. Peter J. Buckley & Jeremy Clegg & Nicolas Forsans & Kevin T. Reilly, 2004. "A Simple and Flexible Dynamic Approach to Foreign Direct Investment Growth: Did Canada Benefit From the Free Trade Agreements with the United States?," International Finance 0407001, EconWPA.
  6. Ferda Halicioglu, 2005. "An Econometric Analysis of Foreign Direct Investment Flows into Turkey from Major Global Regions: 1975-1999," International Trade 0503004, EconWPA.
  7. Ahmad Seyf, 2001. "Can Globalisation and Global Localisation Explain Foreign Direct Investment? Japanese Firms in Europe," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 8(1), pages 137-153.
  8. K Aristotelous, 2005. "Do Currency Unions Affect Foreign Direct Investment Evidence from US FDI Flows into the European Union," Economic Issues Journal Articles, Economic Issues, vol. 10(2), pages 1-10, September.
  9. Xun, Lei & Awokuse, Titus O., 2005. "The Determinants of US Outgoing FDI in the Food-Processing Sector," 2005 Annual meeting, July 24-27, Providence, RI 19131, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  10. Carmen Raluca Stoian & Roger Vickerman, 2005. "The Interplay Between Foreign Direct Investment, Security and European Integration: The Case of the Central and Eastern European Countries," Studies in Economics 0509, Department of Economics, University of Kent.

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