On the Extensive and Intensive FDI Margins: Does European Cohesion Policy Matter?

Abstract

ABSTRACT This paper contributes to the literature discussing the effects of the European Cohesion Policy (ECP) on recipients’ foreign direct investment (FDI). Unlike previous studies, we closely examine the ECP effects not only on total FDI but also on both the extensive and intensive FDI margins. The analysis on the EU 28 countries, conducted using system GMM estimation, suggests ECP plays a role in promoting FDI on the extensive margin only. Moreover, the ECP’s positive marginal effect on total FDI is neutralized in the Central and Eastern European (CEE) countries, implying an increase in their attractiveness through other ways than implementing market-oriented structural reforms.