2010•Lund University Publications Student Papers (Lund University)Requires access
European Regional Integration and Foreign Direct Investment Flows to Joining Countries
Erudita Hoti, Josabeth Alfsdotter
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Abstract
This paper studies the determinants of foreign direct investment in the countries that joined the EU from 1985 to today, and the impact of EU membership on their Bilateral FDI inflows from all OECD countries. The empirical method used is the gravity model, extended with additional explanatory variables, and the econometric models used are pooled OLS, a panel FE model and the FE Poisson model. We find that GDP’s of host and source countries, the distance between them, common language and common border all play important roles in determining bilateral FDI flows in our sample. We also find some support for labor costs of host and source countries, their openness to trade and inflation level in host country, although these results are mixed and depend on the econometric models used. Last but not least it is found that EU-membership has had a strong effect on intra-EU FDI flows, and has also affected the general level of FDI inflows from all OECD countries.