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Determinants of Foreign Direct Investment: insights from selected EU countries

Author

Listed:
  • Dominika Falisová

    (Technical University of Košice, Slovakia)

  • Jozef Glova

    (Technical University of Košice, Slovakia)

Abstract

Foreign Direct Investment (FDI) is a key driver of economic growth, innovation, and sustainable development. Understanding its macroeconomic determinants is essential for policymakers aiming to foster favourable investment environments. However, existing literature lacks consensus on which macroeconomic factors significantly influence FDI. This study addresses this gap by exploring the determinants of FDI across selected EU countries. The study aims to analyze the impact of key macroeconomic variables, such as GDP growth, unemployment rate, public debt, trade openness, corporate income tax rate, and inflation, on FDI, and to identify the most significant drivers of investment flows in the EU context. Panel regression analysis was conducted using data from 17 EU countries from 2014–2023. Data were sourced from Eurostat, OECD, the World Bank, and the International Monetary Fund. The random effects model was selected based on the Hausman test, ensuring robust results. GDP growth and unemployment rate positively influenced FDI, while public debt, trade openness, and corporate income tax rates negatively impacted it. Inflation was not statistically significant. These findings underscore the importance of economic growth and fiscal prudence in attracting investments. This study contributes to the literature by identifying critical macroeconomic factors affecting FDI in the EU, providing actionable insights for policymakers to optimize investment climates. The research also offers a foundation for further empirical investigations into FDI determinants.

Suggested Citation

  • Dominika Falisová & Jozef Glova, 2025. "Determinants of Foreign Direct Investment: insights from selected EU countries," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 12(3), pages 102-117, March.
    • Handle: RePEc:ssi:jouesi:v:12:y:2025:i:3:p:102-117
    DOI: 10.9770/w2945934328
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    References listed on IDEAS

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    1. Wondimhunegn Atilaw Woldetensaye & Endashaw Sisay Sirah & Agumas Shiferaw, 2022. "Foreign direct investments nexus unemployment in East African IGAD member countries a panel data approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 10(1), pages 2146630-214, December.
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    More about this item

    Keywords

    determinants of FDI; public debt; trade openness; corporate income tax; panel regression;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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