Harnessing FDI for innovation and green growth in the EU: Some evidence-based policy recommendations

Chiara Castelli, Ronald Davies, Mahdi Ghodsi, Francesca Guadagno, Javier Flórez Mendoza (), Francesca Micocci and Armando Rungi

No 97, wiiw Policy Notes from The Vienna Institute for International Economic Studies, wiiw

Abstract: Foreign direct investment (FDI) has become a driver of growth in both developed and developing countries, as it enables the transfer of know-how and advanced technologies to host economies. This policy note discusses how FDI can effectively support innovation and green growth within the European Union (EU). It focuses on the role of regulatory harmonisation and technological alignment as factors that can significantly influence the location decisions and effectiveness of FDI. Similarly, as spill-overs from foreign affiliates substantially enhance local innovation capabilities, particularly in green technologies, we argue in favour of policies enhancing domestic absorptive capacity and of policy mechanisms that can systematically integrate sustainability criteria into FDI screening processes. Aligning investment policies with regional technological strengths and green transition goals will enable the EU to leverage FDI strategically for sustainable economic growth and climate resilience.

Keywords: FDI; regulatory distance in NTMs; technological proximity; environmental technology; regional spill-overs (search for similar items in EconPapers)
JEL-codes: F23 L23 O24 O33 O34 Q55 R58 (search for similar items in EconPapers)
Pages: 17 pages including 2 Figures
Date: 2025-06
New Economics Papers: this item is included in nep-eec and nep-sbm
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