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Economic sentiment indicators and foreign direct investment: Empirical evidence from European Union countries

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  • Andrzej Cieslik
  • Mahdi Ghodsi

Abstract

This paper studies the role of business sentiment in the decisions of multinational enterprises (MNEs) to undertake foreign direct investment (FDI) across European Union (EU) member states. Based on the knowledge-capital model, the study employs the Pseudo Poisson Maximum Likelihood (PPML) estimator and panel data to examine empirically the determinants of FDI across EU member states during the period 2003–2017. The empirical evidence suggests that better economic sentiment in an EU Member State induces MNEs to undertake FDI in that country, while worse economic sentiment in an EU member state motivates an MNE in that country to invest abroad.

Suggested Citation

  • Andrzej Cieslik & Mahdi Ghodsi, 2021. "Economic sentiment indicators and foreign direct investment: Empirical evidence from European Union countries," International Economics, CEPII research center, issue 168, pages 56-75.
    • Handle: RePEc:cii:cepiie:2021-q4-168-5
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    More about this item

    Keywords

    Economic sentiment; Factor endowments; Foreign direct investment; Multinational enterprise; Market size; EU Member states;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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