Determinants of FDI Inflows and Policy Implications: A Comparative Study for the Enlarged EU and Candidate Countries

Abstract

This study aims to identify underlying fundamental factors in attracting foreign direct investments (FDI) among the EU countries where there exists a large discrepancy in terms of their economic and technological development levels. The fundamental factors are analyzed by employing panel data models for the EU-15 and the EU-12+2 countries over the period from 1998 to 2008. The empirical findings show dissimilarities in macroeconomic factors such as inflation and the unemployment rate. The common characteristic is that domestic and foreign capital seem to be complementary. Although the integration capacity is an important factor in the EU-12+2, it may not be so important in the EU-15. From a policy perspective, this divergence creates an opportunity to build strong economic links through FDI inflows between these countries.