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What matters most for FDI attraction in services: country or region performance? An empirical analysis of EU for 1997–2012

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Abstract

The European Union is highly attractive for FDI in services but investment is unevenly distributed across EU countries and regions. This paper explores the issue of disentangling national and regional factors in the location choices of service FDI in the EU for the period 1997–2012. Using a dynamic panel Poisson model, our results support the conclusion by Casi and Resmini (Pap Reg Sci 93(S1):51–78, 2014) that both national and regional performances are considered by foreign investors in services when making their location decisions. However, we emphasize that the interplay between regional and national determinants is not straightforward and varies greatly between sectors and groups of countries. In this respect, the business services sector is close neither to the industrial sector nor to the other services sector, whatever the kind of country: those sectors cannot be considered as a single entity when trying to understand FDI location in services. A similar conclusion can be reached about the location in a region within the EU: depending on whether it belongs to the most attractive group of countries or not for service FDI, the combination of regional and national performances under consideration is not the same for investors. Therefore, implementing uniform economic policies across sectors and places to attract service FDI is likely to be inefficient. Policymakers should design specific measures depending on the type of services they wish to attract and should take into account the characteristics of the area at subnational, national or EU level.

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Fig. 1

Source: Author’s calculation based on the EIM database

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Notes

  1. See, for example, Head and Mayer (2004), Basile et al. (2009) Defever (2012) and Casi and Resmini (2014), for FDI in the EU.

  2. See, for example, Kolstad and Villanger (2008), Tomlin (2008), Nefussi and Schwellnus (2010), Riedl (2010), Ramasamy and Yeung (2010), Castellani et al. (2012), Yin et al. (2014) and Duboz et al. (2016).

  3. e.g., Guimarães et al. (2000), Basile (2004), Crozet et al. (2004), Barrios et al. (2006), Békés (2007), Devereux et al. (2007), Defever (2006), Kolstad and Villanger (2008), Doh et al. (2009) and Nefussi and Schwellnus (2010).

  4. These sectors are described in detail in the third section.

  5. There are other FDI databases, for instance fDi Markets or Amadeus. However, the fDi Markets database only starts in 2003, 6 years after the start of the EMI database, and would have shortened our time period of study. We chose the EMI database rather than the Amadeus one, used by Casi and Resmini (2014) and which is a widely used source of information for empirical research on FDI, because of an access opportunity.

  6. The Nomenclature of Territorial Units for Statistics, abbreviated as NUTS (from the French “Nomenclature des Unités Territoriales Statistiques”), is a geographical nomenclature subdividing the territory of the EU into regions at three different levels (NUTS 1, 2 and 3, respectively, moving from larger to smaller territorial units). NUTS 2 regions correspond to a population between 800,000 and 3,000,000 people.

  7. From the 272 NUTS 2 regions for the EU-28, we removed the four French overseas territories.

  8. For instance, for T = 2, then \(y_{i,t - T}^{*}\) includes the sum of the total number of projects at t = 1 and t = 2.

  9. There are 200 regions over a total of 268 that do not share a border with a region of another country. There is no particular treatment for the islands, except that they are all associated with a value of 1 for the dummy Sea.

  10. The data available on Eurostat for our panel of regions do not allow constructing more variables for services at the regional level. Hence, some caution is needed for the interpretation of the estimation results.

  11. We are conscious of the fact that the economic crisis may not have started in the same year through Europe. However, with the exception of Bulgaria, GDP declined in all Members States from 2008 onwards, which justifies our choice for the dummy variable.

  12. These results are available upon request from the authors. Unless otherwise stated, correlations observed for the year under consideration are also significant within a 2–5-year period of observation. Sometimes a correlation may not be significant for the year under study but may be significant when dealing with a longer period of observation.

  13. For example Defever (2006), Sachwald and Chassagneux (2007), Kolstad and Villanger (2008), Py and Hatem (2009), Nefussi and Schwellnus (2010), Castellani et al. (2012, 2014) and Duboz et al. (2016).

  14. This is also the case for the other services sector when considering the stock of FDI in a 3–5-year period of time.

  15. This is confirmed by the significance of agglomeration variables—or their spatial lags in the case of service FDI in industry.

  16. This is also the case in the other services sector as regards the level of R&D expenditure, where such a positive correlation is observed when dealing with FDI in a 2–5-year period of time.

  17. This result is observed when dealing with the stock of FDI within a 2–5-year period of time.

  18. The agglomeration of companies in the other services sector in neighboring regions is no more significant when dealing with a 2–5-year stock of FDI.

  19. Except in the industrial sector when dealing with the stock of FDI in a 3–5-year period of time.

  20. The between effect observed for FDI in the year under consideration in the industrial and the other services sectors is not stable over time (when dealing with the stock of FDI in a 2–5-year period of time).

  21. For the business services sector, the within effect is also observed when dealing with the stock of FDI in a 3–5-year period of time.

  22. For a detailed explanation, see Kalinova et al. (2010).

  23. Tables 6 and 7, available in “Appendix” section, display the results related to service FDI made during the year under consideration. Results pertaining to a 2–5-year stock of service FDI are not reported here but are available upon request from the authors. Correlations brought to light in this section are those observed for the year under consideration and which are also significant within a 2–5-year period of observation.

  24. The between effect observed in the business services sector in the least attractive countries is not stable over time. (It is only significant for the year under consideration.)

  25. This result is observed when dealing with the stock of FDI within a 2–5-year period of time.

  26. Notice nevertheless that is also the case in the business services sector in the least attractive States when dealing with the stock of FDI in a 2–5-year period of time.

  27. The corresponding estimation results are presented in Table 8.

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Authors and Affiliations

  1. CRESE, Université de Bourgogne Franche-Comté, UFC, F-25000, Besançon, France

    Marie-Line Duboz

  2. FEMTO-ST/RECITS UMR 6174, Université de Bourgogne Franche-Comté, UTBM, F-90010, Belfort Cedex, France

    Nathalie Kroichvili

  3. CESAER UMR1041, AGROSUP Dijon, INRA, Université de Bourgogne Franche-Comté, F-21000, Dijon, France

    Julie Le Gallo

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  1. Marie-Line Duboz
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Appendix

Appendix

See Tables 6, 7 and 8.

Table 6 GMM estimation results for the dynamic count model with 1-year lag for the UK, France, Germany and Spain.
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Table 7 GMM estimation results for the dynamic count model with 1-year lag for the other European countries.
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Table 8 GMM estimation results for the dynamic count model with 1-year lag for groups of regions.
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Duboz, ML., Kroichvili, N. & Le Gallo, J. What matters most for FDI attraction in services: country or region performance? An empirical analysis of EU for 1997–2012. Ann Reg Sci 63, 601–638 (2019). https://doi.org/10.1007/s00168-019-00949-4

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