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Harnessing FDI for innovation and green growth in the EU: Some evidence-based policy recommendations

Author

Listed:
  • Chiara Castelli

    (The Vienna Institute for International Economic Studies, wiiw)

  • Ronald B. Davies
  • Mahdi Ghodsi

    (The Vienna Institute for International Economic Studies, wiiw)

  • Francesca Guadagno

    (The Vienna Institute for International Economic Studies, wiiw)

  • Javier Flórez Mendoza

    (The Vienna Institute for International Economic Studies, wiiw)

  • Francesca Micocci
  • Armando Rungi

Abstract

Foreign direct investment (FDI) has become a driver of growth in both developed and developing countries, as it enables the transfer of know-how and advanced technologies to host economies. This policy note discusses how FDI can effectively support innovation and green growth within the European Union (EU). It focuses on the role of regulatory harmonisation and technological alignment as factors that can significantly influence the location decisions and effectiveness of FDI. Similarly, as spill-overs from foreign affiliates substantially enhance local innovation capabilities, particularly in green technologies, we argue in favour of policies enhancing domestic absorptive capacity and of policy mechanisms that can systematically integrate sustainability criteria into FDI screening processes. Aligning investment policies with regional technological strengths and green transition goals will enable the EU to leverage FDI strategically for sustainable economic growth and climate resilience.

Suggested Citation

  • Chiara Castelli & Ronald B. Davies & Mahdi Ghodsi & Francesca Guadagno & Javier Flórez Mendoza & Francesca Micocci & Armando Rungi, 2025. "Harnessing FDI for innovation and green growth in the EU: Some evidence-based policy recommendations," wiiw Policy Notes 97, The Vienna Institute for International Economic Studies, wiiw.
    • Handle: RePEc:wii:pnotes:pn:97
    as

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    File URL: https://wiiw.ac.at/harnessing-fdi-for-innovation-and-green-growth-in-the-eu-some-evidence-based-policy-recommendations-dlp-7346.pdf
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    More about this item

    Keywords

    FDI; regulatory distance in NTMs; technological proximity; environmental technology; regional spill-overs;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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