Determinants of the Outward US FDI in the European Union Countries: A Panel Data Analysis

Abstract

The United States is the largest recipient of foreign direct investment (FDI) in the world and the largest investor abroad. American direct investment abroad has grown sharply since the mid-1990s, raising questions about the effects of such investment on the U.S. economy. Critics claim that MNC’s domestic and international operations need to be rebalanced through changes in U.S. tax, trade and investment policy. The introductory part of this research includes the global aspects of outward US FDI, followed by analysis of corporate players. The next part of this research focuses on empirical literature related to outward US FDI determinants, research methodology, model specification, adequacy of the resources, expected outcomes, empirical results and conclusions. The goal of this research is to illustrate the impact of the following variables on outward US FDI in the European Union countries:: the financial variables include: the real interest differential and real exchange rate; the economic variables are represented by: GDP per capita and GDP growth rate, the globalization process includes openness and is measured as total trade as a percentage of GDP; structural and location variables focus on education, infrastructure, telecommunication, civil liberty, perception of corruption, business environment; the labor quality variable incorporates labor productivity, unemployment rate, and the labor cost. The other factors integrate; inflation, tax on capital, Research and Development and corporate business tax. In order to test the implications of our models, we collected a panel of aggregate data on the outward US FDI to all 28 member countries of the European Union for which FDI and all other relevant variables are reported over the 2000–2013 period. In this study we employ recently developed panel data techniques and closely follow empirical literature to identify the factors that determine US FDI outflows.