Foreign Direct Investment in Developed Economies: A Comparison between European and non - European Countries
We analyse the determinants of foreign direct investment (FDI) by multinational corporations (MNCs) in developed economies. We compare between EU and non-EU countries, in the context of an estimated equation derived from economic theory, which compares the main demand and supply-side determinants of FDI. We contribute to the literature in three ways. First, by employing different proxies for demand and supply-side factors. Second, by comparing between European and non-European developed countries. Third, by testing for the relative importance of total factor productivity (TFP) as a determinant of FDI. Our results are in line with theoretical predictions, but point to the importance of TFP as the determinant par excellence of FDI in developed countries. They also highlight differences even within developed European and non-European counties.
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