The eastward expansion of the European Union: Is foreign direct investment being diverted from the EU periphery?
Date
2011
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Publisher
University of Delaware
Abstract
This thesis investigated the relationship between FDI and the EU periphery, along with the region's interaction with the CEECs and EU-27. Much research has been done to identify both the flow and attraction of FDI, but while previous studies have looked at the effect of in the CEECs prior to integration into the EU, to the best of my knowledge, this is the first analysis to capture the effects of the latter two enlargement rounds, utilizing data that includes a running series up until the duration of 2009. By focusing on the most recent data series in the EU periphery and CEECs, along with their respective FDI stock, a more accurate relationship can be discerned. As such, this analysis seeks to investigate FDI and its directional relationship with the CEECs. This analysis relies on a panel model approach, using GMM estimation to evaluate FDI stock in the EU periphery and CEECs during the period from 1995-2009. The resulting coefficients estimated in each specification did not indicate any presence of FDI diversion, instead noting an overall positive impact the CEECs have on peripheral-bound FDI. Moreover, increased opportunities in the EU-27 also have both a positive and significant relationship with FDI in the EU periphery. Subsequently, the analysis finds evidence for unidirectional interaction between the EU periphery and the CEECs, and not vice versa. Furthermore, the results show wage competiveness to have a strong negative impact on FDI in the EU periphery, while reductions in risk are strongly beneficial. Additional tests were conducted using FDI stock by share of the EU-27 and found similar results, failing to find any evidence of FDI diversion.