FDI determinants in Europe and Chinese influence

  • Alena Rygorayna Dorakh Trier University ( Germany) The University of Warsaw ( Poland)
Keywords: FDI, trade costs, connectivity, Chinese investment, horizontal, vertical, and export-oriented strategies, he Belt and Road Initiative (BRI), fixed and random effects

Abstract


Despite recent concerns about the increasing influence of outside investors on the European Union (EU) and Western Balkans, the developed European countries are still a dominant source of foreign direct investment (FDI) in the region, confirming the benefits of EU membership. At the same time, fast-growing connectivity and lower trade costs in accession and neighboring countries determine the FDI growth from China, particularly via the Belt and Road Initiative (BRI). By applying panel data over 2000-2019 for 34 countries, which form 89% of all European FDI, we first examine FDI patterns around Europe, compare the EU, NMS, and Western Balkans; verify the importance of EU membership for FDI, caused reducing trade costs and improving connectivity. Thus, the new EU member states (NMS) and Western Balkans appear both as a home country and as a pre- entry destination to the EU. Then, we calculate trade costs indices for each selected country and partners over time and find that Europe and China are closely interconnected through trade and FDI. It means that stronger ties with China can be realized for the sample countries at the cost of easing relations with the EU. Finally, incorporating trade costs indices into the FDI model; we evaluate the impact of connectivity on FDI and estimate how BRI affected FDI in Europe. Additionally, we validate that the old framework of horizontal and vertical FDI not representative well and even new complex vertical or export-oriented FDI strategies are shifting today.

Author Biography

Alena Rygorayna Dorakh, Trier University ( Germany) The University of Warsaw ( Poland)

Candidate of Economic science (2006) Master in Management (2014)

 

 

References

Asiedu, E. (2002). On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different? World Development, 30 (1), 107-119.

Asiedu, E. (2006). Foreign Direct Investment in Africa: The Role of Natural Resources, Market Size, Government Policy, Institutions and Political Instability. The World Economy, 29 (1), 63-77.

Baltagi, B.H., Egger, P.H., & Pfafermayr, M. (2007). Estimating Regional Trade Agreement Effects on FDI in an Interdependent World. Syracuse University – Maxwell School of Citizenship and Public Affairs Center for Policy Research Working Paper No. 100. Retrieved from http://dx.doi.org/10.2139/ssrn.1809094

Bevan, A., Estrin, S., & Meyer, K. (2004). Foreign investment location and institutional development in transition economies. International Business Review, 13 (1), 43–64.

Blonigen, B.A., Davies, R.B., Waddell, G.R., & Naughton, H.T. (2007). FDI in space: Spatial autoregressive relationships in foreign direct investment. European Economic Review, 51 (5), 1303-1335.

Bruno, R., Campos, N., Estrin, S., & Meng, T. (2017). Economic integration, foreign investment and international trade: the effects of membership of the European Union. LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library. Retrieved from https://EconPapers.repec.org/RePEc:ehl:lserod:86615.

Canh, N.P., Binh, N.T., Thanh, S.D., & Schinckus, C. (2020). Determinants of foreign direct investment inflows: The role of economic policy uncertainty. International Economics, 161 (C), 159-172.

Chen, M.X. & Lin, C. (2018). Foreign Investment across the Belt and Road: Patterns, Determinants, and Effects. Policy Research Working Paper; No. 8607. World Bank. Retrieved from https://openknowledge.worldbank.org/handle/10986/30577

Dunning, J.H. (1973). The Determinants of International Production. Oxford Economic Papers New Series, 25 (3), 289–336.

Dunning, J.H., & Lundan, S.M. (2008). Institutions and the OLI Paradigm of the Multinational Enterprise. Asia Pacific Journal of Management, 25 (4), 573-593.

Feenstra, R.C., Inklaar, R. & Timmer, M. P. (2015). The Next Generation of the Penn World Table",American Economic Review, 105(10), 3150-3182. available for download at:www.ggdc.net/pwt<https://www.rug.nl/ggdc/productivity/pwt/related-research>

Helpman, E. (1984). A Simple Theory of Trade With Multinational Corporations. Journal of Political Economy, 92 (3), 451-471.

Helpman, E. (2006). Trade, FDI, and the Organization of Firms. Journal of Economic Literature, 44 (3), 589-630.

Jirasavetakul, L.F., & Rahman, J. (2018). Foreign Direct Investment in New Member States of the EU and Western Balkans: Taking Stock and Assessing Prospects. IMF Working Papers, 18/187.

Jungbluth, C. (2019). Tracing three decades of foreign direct investment booms and busts and their recent decline. Blog global Economic Dynamics. Retrieved from https://ged-project.de/allgemein-en/foreign-direct-investment/

Kano, L., & Oh, C.H. (2020). Global Value Chains in the Post COVID World: Governance for Reliability. Journal of Management Studies, 57 (8), 1773-1777.

Markusen, J.R. (1984). Multinationals, Multi-plant Economies, and the Gains from Trade. Journal of International Economics, 16 (3-4), 205-226.

Markusen, J.R. (2000). Foreign Direct Investment, CIES Working Paper No. 19. Retrieved from http://dx.doi.org/10.2139/ssrn.231202

Markusen, J. R. (2002). Multinational firms and the theory of international trade. Cambridge: MIT Press.

Mistura, F., & Roulet, C. (2019). The determinants of Foreign Direct Investment: Do statutory restrictions matter?, OECD Working Papers on International Investment, No. 2019/01. OECD Publishing, Paris, France.

Novy, D. (2011). Gravity Redux: Measuring International Trade Costs with Panel Data. CESifo Working Paper Series No. 3616, CESifo. Retrieved from https://ideas.repec.org/p/ces/ceswps/_3616.html

Smarzynska, B.K., & Wie, S.J. (2000). Corruption and Composition of Foreign Direct Investment: Firm-Level Evidence, Policy Research Working Paper, No. 2360. World Bank, Washington, DC.

Welfens, P.J.J., & Baier, F.J. (2018). BREXIT and Foreign Direct Investment: Key Issues and New Empirical Findings. International Journal of Financial Studies, 6 (2), 46-67.

World investment report. (2020). Retrieved from: https://unctad.org/en/PublicationsLibrary/wir2020_en.pdf

Published
2021/06/03
Section
Original Scientific Paper