Location attractiveness for Foreign Direct Investment of EU New Member Countries in comparison with old ones

Abstract

This paper examines the determinants of distribution of inward Foreign Direct Investment (FDI) stock, in 6 new EU Member-Countries (NMCs) in comparison with five old Member-Countries (OMCs) from 2000 to 2004. Evidence suggests a heterogeneous response of FDI towards the two EU regions – considered as country groups – in the processes of globalisation and enlargement. The level of FDI stock in OMCs is positively influenced by their economic environment, and particularly productivity gains and the availability of skills, and negatively influenced by increases in labour costs and high levels of entrepreneurship indicating the importance of efficiency types of MNEs operations. By contrast, the level of FDI stock in NMCs is positively influenced by the efficiency of their business environment and the degree of globalisation, and negatively influenced by increases in unit labour costs, and high levels of entrepreneurship.