The Effect on Foreign Direct Investment of Membership in the European Union

This article explores the impact of EU membership on foreign direct investment (FDI). It analyses empirically how the effects of such deep integration differ from other forms and investigates what drives these effects. Using a structural gravity framework on annual bilateral FDI data for almost ever...

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Bibliographic Details
Published in:Journal of common market studies Vol. 59; no. 4; pp. 802 - 821
Main Authors: Bruno, Randolph Luca, Campos, Nauro Ferreira, Estrin, Saul
Format: Journal Article
Language:English
Published: Oxford Wiley Subscription Services, Inc 01.07.2021
Blackwell Publishing Ltd
Subjects:
Analysis
Business schools
Central banks
Common markets
deep economic integration
EU membership
European Union
foreign direct investment
Foreign investment
Foreign investments
Free trade
Gravity
International economic integration
International trade
Investments
Markets
Membership
North American Free Trade Agreement
Research institutes
Single market
structural gravity model
ISSN:0021-9886, 1468-5965
Online Access:Get full text
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Summary:This article explores the impact of EU membership on foreign direct investment (FDI). It analyses empirically how the effects of such deep integration differ from other forms and investigates what drives these effects. Using a structural gravity framework on annual bilateral FDI data for almost every country in the world from 1985 to 2018, we find EU membership leads to about 60 per cent higher FDI investment into the host economy from outside the EU, and around 50 per cent higher intra‐EU FDI. Moreover, we find that the effect of EU membership on FDI is larger than from membership of the North American Free Trade Agreement, the European Free Trade Association and the Southern Common Market, and that the single market is the cornerstone of this differential impact.
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ISSN:0021-9886
1468-5965
DOI:10.1111/jcms.13131