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An Empirical Analysis of Inward Foreign Direct Investment Flows in the EU with Emphasis on the Market Enlargement Hypothesis*
Author(s) -
Aristotelous Kyriacos,
Fountas Stilianos
Publication year - 1996
Publication title -
jcms: journal of common market studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.54
H-Index - 90
eISSN - 1468-5965
pISSN - 0021-9886
DOI - 10.1111/j.1468-5965.1996.tb00591.x
Subject(s) - foreign direct investment , international economics , proxy (statistics) , resizing , european union , pooling , economics , domestic market , single market , monetary economics , estimation , international trade , business , macroeconomics , management , machine learning , artificial intelligence , computer science
Abstract We use a cross‐section, time‐series approach to study the determinants of foreign direct investment (FDI) in the European Union (EU) 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).