Which Factors Attract Fdi In Real Estate? Some Preliminary Findings

In recent years, some firms operating in the real market sector have displayed a rather internationally oriented behaviour. This behaviour has been materialized in large amounts of foreign investments that have been directed to other countries. Within this set of companies, the Spanish ones encompass a prominent and dynamic group. This paper intends to ascertain which are the main variables that influence real markets firms when deciding which host country to choose as a potential destiny. We use data obtained from the behaviour of some important Spanish development firms playing in the sector in the last few years. We analyse the potential impact of three kind of factors, that have been signalled by the literature on FDI as relevant: first, the size of the country, as proxied by its GDP or population. Next, its macroeconomic and social environment, as described by various macroeconomic variables (inflation, growth, public deficit) and other, more sophisticated indicators of institutional development (indexes of economic freedom or country risk). Finally, we investigate the role of the market concerned, in this case the real estate market. Preliminary results suggest that all these variables are relevant. In particular, the size of the market appears as very important, Generally speaking, firms tend to prefer larger markets, despite higher country risk premiums, to small markets of rather stable countries. This pattern, also documented in other industries, suggests the existence of a fixed cost that has to be incurred upon when trying to access other countries.