An empirical analysis of inward foreign direct investment flows in the European Union with emphasis on the market enlargement hypothesis
Fountas, Stilianos
Fountas, Stilianos
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Publication Date
1995-09
Type
Working Paper
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Fountas, S. (1995). "An empirical analysis of inward foreign direct investment flows in the European Union with emphasis on the market enlargement hypothesis" (Working Paper No. 004) Department of Economics, National University of Ireland, Galway.
Abstract
We use a cross-section, time-series approach to study the determinants of foreign direct investment (FDI) in the European union with particular emphasis on the expectations of a Single Market following the Single European Act of 1987. Using annual data from the 1980s and early 1990s, we investigate the determinants of US and Japanese FDI in the EU by pooling the data by the host country. We find strong evidence in favour of a Single Market effect where the anticipation of a larger market size due to a barriers-free European market leads to an increase in the inflows of FDI. In addition, our estimation results show that FDI flows in the EU also depend on market size and the real exchange rate (as a proxy of relative labour costs).
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National University of Ireland, Galway
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Attribution-NonCommercial-NoDerivs 3.0 Ireland