Impediments in attracting greenfield investment: does a stable absorption rate of the European cohesion policy make a difference?

Abstract

ABSTRACT This paper seeks to investigate how the absorption rate of the European Cohesion Policy (ECP) funds and its dynamics are related to the creation of greenfield foreign direct investment (FDI) projects in the European Union (EU). A dynamic panel estimation based on 28 recipient countries in 2007–2016 reveals that a high ECP funds absorption rate alone does not ensure the creation of greenfield FDI. However, stable absorption (i.e. low dynamics in the ECP funds absorption rate) seems to promote greenfield investment. The large year-to-year changes in the ECP funds absorption rate appear to indicate a non-stable business environment that may hamper new investment, calling for corrective mechanisms to prevent the inefficient rapid withdrawal of funds after the eligibility period.