The role of FDI in preventing imbalances in the euro area

Maria Demertzis and Peter Pontuch

Quarterly Report on the Euro Area (QREA), 2013, vol. 12, issue 2, 17-25

Abstract: The recent crisis has revealed the unsustainability of large debt-financed negative external positions. Foreign direct investment is a more stable financing option for the current account because in general it is not debt-generating and has positive effects on the productivity of the recipient economy. After reviewing the determinants and mechanisms driving total FDI, this focus section goes on to look at the composition of FDI. Tradable sector FDI has the potential to improve the trade balance by stimulating exports. Policies that can attract FDI in tradable sectors are therefore highly desirable. The empirical analysis identifies wages and education as the two main determinants of this type of FDI in the euro area. The quality of business-relevant infrastructure and distance from important industrial centres are also components that boost the proportion of FDI in the tradable sector.

Keywords: foreign direct investment; macroeconomic imbalances (search for similar items in EconPapers)
Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://ec.europa.eu/economy_finance/publications/q ... qrea2_focus_2_en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:euf:qreuro:0122-02

Access Statistics for this article

More articles in Quarterly Report on the Euro Area (QREA) from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission Contact information at EDIRC.
Bibliographic data for series maintained by ECFIN INFO ().