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Foreign Direct Investment and the Profit Rate: Empirical Evidence from the European Union

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  • Dimitris Groumpos
  • George Economakis

Abstract

This article aims to explain recent trends of foreign direct investment (FDI) in the developed world, and specifically in the case of the European Union (EU). It includes an empirical analysis of FDI in two distinct EU country groups and finds that the profit rate plays a significant role in determining FDI patterns. It is shown that relatively less developed Eastern EU members have a higher profit rate and thus have established themselves as an attractive FDI destination within the EU. Additional factors that influence FDI are market size, long-term FDI attractiveness, and trade protectionism. Finally, a sectoral analysis of FDI and trade shows that increased FDI in less developed Eastern EU members is mainly of an export-oriented type. JEL Classification: F14, F15, F21, P16

Suggested Citation

  • Dimitris Groumpos & George Economakis, 2022. "Foreign Direct Investment and the Profit Rate: Empirical Evidence from the European Union," Review of Radical Political Economics, Union for Radical Political Economics, vol. 54(4), pages 520-541, December.
    • Handle: RePEc:sae:reorpe:v:54:y:2022:i:4:p:520-541
    DOI: 10.1177/04866134221101435
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    References listed on IDEAS

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    More about this item

    Keywords

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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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