Determinants of net inflows of foreign direct investment in EU countries.

What is it about?

The inflows of foreign direct investment (FDI) are often seen as one of the factors increasing the economic growth of the country. Therefore, considerable attention is paid to examining of its determinants, of which corporate taxes is often seen as one. However, there have been mixed results with respect to the effects of these factors in the literature so far. Hence, we identify the factors affecting the FDI inflows in EU countries. On the one hand, our results suggest that there is virtually no significant effect of corporate taxes on FDI. On the other hand, we find valid positive or negative effects in the cases of labour costs, openness of the economy, firing costs, GDP per capita and public debt in the country.

Featured Image

Why is it important?

Identification of key factors affecting the inflows of FDI could be crucial especially for policy settings. If corporate taxes have only small effect on FDI tax policy should take into account this fact. On the other hand, public policies should be focused more on labour market isssue, public debt and openness of the economy i.e. foreign trade.