IDEAS home Printed from https://ideas.repec.org/a/bla/worlde/v47y2024i5p2194-2218.html
   My bibliography  Save this article

How EU membership affects foreign direct investment: Differences between EU15 and CEE countries

Author

Listed:
  • Bettina Meinhart

Abstract

This article examines the impact of membership in the European Union (EU) on foreign direct investments (FDI). In contrast to previous studies, the overall effect of EU membership is disaggregated by countries that joined the EU before 2004 (EU15) and those that joined after 2004 [Central and Eastern European (CEE)]. This disaggregation is motivated by differences between the two groups in terms of their historical background, GDP levels and motives for FDI. Furthermore, the effects of EU membership are estimated at the country level. Using a structural FDI gravity model and applying recent advances in the gravity estimation literature, it is shown that membership of the EU has a substantial positive impact on both inward and outward FDI stocks. In particular, there is considerable heterogeneity in the impact of EU membership, with EU15 countries experiencing mainly an increase in inward FDI, while CEE countries experience a surge in outward FDI.

Suggested Citation

  • Bettina Meinhart, 2024. "How EU membership affects foreign direct investment: Differences between EU15 and CEE countries," The World Economy, Wiley Blackwell, vol. 47(5), pages 2194-2218, May.
    • Handle: RePEc:bla:worlde:v:47:y:2024:i:5:p:2194-2218
    DOI: 10.1111/twec.13541
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/twec.13541
    Download Restriction: no
    File URL: https://libkey.io/10.1111/twec.13541?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 589-630, September.
    2. Peter Egger & Michael Pfaffermayr, 2004. "Foreign Direct Investment and European Integration in the 1990s," The World Economy, Wiley Blackwell, vol. 27(1), pages 99-110, January.
    3. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    4. Kees Jan Van Garderen & Chandra Shah, 2002. "Exact interpretation of dummy variables in semilogarithmic equations," Econometrics Journal, Royal Economic Society, vol. 5(1), pages 149-159, June.
    5. Randolph Luca Bruno & Nauro Ferreira Campos & Saul Estrin, 2021. "The Effect on Foreign Direct Investment of Membership in the European Union," Journal of Common Market Studies, Wiley Blackwell, vol. 59(4), pages 802-821, July.
    6. Ellen R. McGrattan & Edward C. Prescott, 2010. "Technology Capital and the US Current Account," American Economic Review, American Economic Association, vol. 100(4), pages 1493-1522, September.
    7. Ingo Borchert & Mario Larch & Serge Shikher & Yoto V. Yotov, 2022. "Disaggregated gravity: Benchmark estimates and stylized facts from a new database," Review of International Economics, Wiley Blackwell, vol. 30(1), pages 113-136, February.
    8. Henk L. M. Kox & Hugo Rojas‐Romagosa, 2020. "How trade and investment agreements affect bilateral foreign direct investment: Results from a structural gravity model," The World Economy, Wiley Blackwell, vol. 43(12), December.
    9. Egger, Peter & Larch, Mario, 2008. "Interdependent preferential trade agreement memberships: An empirical analysis," Journal of International Economics, Elsevier, vol. 76(2), pages 384-399, December.
    10. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, December.
    11. María Pía Olivero & Yoto V. Yotov, 2012. "Dynamic gravity: endogenous country size and asset accumulation," Canadian Journal of Economics, Canadian Economics Association, vol. 45(1), pages 64-92, February.
    12. Paul J. J. Welfens & Fabian J. Baier, 2018. "BREXIT and Foreign Direct Investment: Key Issues and New Empirical Findings," IJFS, MDPI, vol. 6(2), pages 1-21, April.
    13. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
    14. Harald Oberhofer & Michael Pfaffermayr, 2021. "Estimating the trade and welfare effects of Brexit: A panel data structural gravity model," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 338-375, February.
    15. Harald Oberhofer & Michael Pfaffermayr, 2018. "Estimating the Trade and Welfare Effects of Brexit: A Panel Data Structural Gravity Model," FIW Working Paper series 187, FIW.
    16. José de Sousa & Julie Lochard, 2011. "Does the Single Currency Affect Foreign Direct Investment?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(3), pages 553-578, September.
    17. Anderson, James E. & Larch, Mario & Yotov, Yoto V., 2019. "Trade and investment in the global economy: A multi-country dynamic analysis," European Economic Review, Elsevier, vol. 120(C).
    18. Bergstrand, Jeffrey H. & Larch, Mario & Yotov, Yoto V., 2015. "Economic integration agreements, border effects, and distance elasticities in the gravity equation," European Economic Review, Elsevier, vol. 78(C), pages 307-327.
    19. Head, Keith & Ries, John, 2008. "FDI as an outcome of the market for corporate control: Theory and evidence," Journal of International Economics, Elsevier, vol. 74(1), pages 2-20, January.
    20. Bellak, Christian, 1996. "International capital mobility--a note," Journal of International Money and Finance, Elsevier, vol. 15(5), pages 825-828, October.
    21. Estrin, Saul & Meyer, Klaus E. & Pelletier, Adeline, 2018. "Emerging Economy MNEs: How does home country munificence matter?," Journal of World Business, Elsevier, vol. 53(4), pages 514-528.
    22. Peter Egger & Sergey Nigai, 2015. "Energy Demand and Trade in General Equilibrium," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 60(2), pages 191-213, February.
    23. Egger, Peter & Pfaffermayr, Michael, 2004. "The impact of bilateral investment treaties on foreign direct investment," Journal of Comparative Economics, Elsevier, vol. 32(4), pages 788-804, December.
    24. Bevan, Alan A. & Estrin, Saul, 2004. "The determinants of foreign direct investment into European transition economies," Journal of Comparative Economics, Elsevier, vol. 32(4), pages 775-787, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bettina Meinhart, "undated". "How EU membership affects foreign direct investment: Differences between EU15 and CEE countries," FIW Working Paper series 197, FIW.
    2. Henk L. M. Kox & Hugo Rojas‐Romagosa, 2020. "How trade and investment agreements affect bilateral foreign direct investment: Results from a structural gravity model," The World Economy, Wiley Blackwell, vol. 43(12), December.
    3. Kox, Henk L.M., 2022. "A micro-macro model of foreign direct investment: knowledge-based gravity forces, self-selection and third-country effects," MPRA Paper 115542, University Library of Munich, Germany.
    4. Harald Oberhofer & Michael Pfaffermayr & Richard Sellner, 2021. "Revisiting time as a trade barrier: Evidence from a panel structural gravity model," Review of International Economics, Wiley Blackwell, vol. 29(5), pages 1382-1417, November.
    5. Kox, Henk L.M., 2022. "Explaining foreign direct investment patterns: a testable micro-macro gravity model for FDI," MPRA Paper 115273, University Library of Munich, Germany.
    6. Mariam Camarero & Sergi Moliner & Cecilio Tamarit, 2022. "A fresh assessment of the euro effect on outward US FDI," Working Papers 2209, Department of Applied Economics II, Universidad de Valencia.
    7. Milena Kern & Jörg Paetzold & Hannes Winner, 2021. "Cutting red tape for trade in services," The World Economy, Wiley Blackwell, vol. 44(10), pages 2858-2886, October.
    8. Julia Spornberger, 2022. "EU integration and structural gravity: A comprehensive quantification of the border effect on trade," Review of International Economics, Wiley Blackwell, vol. 30(4), pages 915-938, September.
    9. Camarero, Mariam & Moliner, Sergi & Tamarit, Cecilio, 2024. "A Fresh Assessment of the Depth of the “Euro Effect" on US FDI," Single Market Economics Papers WP2024/18, Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs (European Commission), Chief Economist Team.
    10. Harald Oberhofer & Gerhard Streicher, 2019. "Die Handelseffekte der österreichischen EU-Mitgliedschaft 25 Jahre nach der Volksabstimmung," WIFO Studies, WIFO, number 61796, January.
    11. Mario Larch & Serge Shikher & Constantinos Syropoulos & Yoto V. Yotov, 2022. "Quantifying the impact of economic sanctions on international trade in the energy and mining sectors," Economic Inquiry, Western Economic Association International, vol. 60(3), pages 1038-1063, July.
    12. Mario Larch & Yoto V. Yotov, 2024. "Estimating the effects of trade agreements: Lessons from 60 years of methods and data," The World Economy, Wiley Blackwell, vol. 47(5), pages 1771-1799, May.
    13. Federico Carril-Caccia & Juliette Milgram Baleix & Jordi Paniagua, 2022. "Does terrorism affect greenfield investment? A structural gravity approach," ThE Papers 22/06, Department of Economic Theory and Economic History of the University of Granada..
    14. Masood, Amjad, 2021. "Anatomy of the trade-effect of regional trade agreements and agenda for future research," MPRA Paper 108284, University Library of Munich, Germany.
    15. Lisandra Flach & Inga Heiland & Mario Larch & Marina Steininger & Feodora A. Teti, 2024. "Quantifying the partial and general equilibrium effects of sanctions on Russia," Review of International Economics, Wiley Blackwell, vol. 32(1), pages 281-323, February.
    16. Di Ubaldo, Mattia & Gasiorek, Michael, 2022. "Non-trade provisions in trade agreements and FDI," European Journal of Political Economy, Elsevier, vol. 75(C).
    17. Kox, Henk L.M. & Rojas Romasgosa, Hugo, 2019. "Gravity estimations with FDI bilateral data: Potential FDI effects of deep preferential trade agreements," MPRA Paper 96318, University Library of Munich, Germany.
    18. Mariam Camarero & Sergi Moliner & Cecilio Tamarit, 2021. "Is there a euro effect in the drivers of US FDI? New evidence using Bayesian model averaging techniques," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(4), pages 881-926, November.
    19. Mario Larch & Yoto V. Yotov, 2016. "General Equilibrium Trade Policy Analysis with Structural Gravity," CESifo Working Paper Series 6020, CESifo.
    20. Harald Oberhofer & Michael Pfaffermayr & Yvonne Wolfmayr, 2021. "Die Auswirkungen des Brexit auf Österreichs Wirtschaft," WIFO Studies, WIFO, number 66782.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:worlde:v:47:y:2024:i:5:p:2194-2218. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0378-5920 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.