Barriers to FDI in the European Union Countries: The Perception of Foreign Subsidiaries

Abstract

Literature on FDI location determinants has adopted a macro approach, and only few studies have followed a micro perspective, analyzing FDI barriers in the EU. This study aims to fill this gap through an exploratory study based on the perceptions of 42 foreign subsidiaries established in the EU since 2010. Results indicate that bureaucracy and labor market structure and regulations are the most significant barriers. Additionally, the perception of barriers differs considering the subsidiaries’ location and mode of establishment, suggesting the need for tailor made policies, in order to overcome the barriers perceived to be higher in certain locations.

Keywords:

• Barriers to FDI
• European Union
• FDI location
• foreign direct investment
• multinational enterprises

Notes

1 Note that the United Kingdom only left the EU on 31 January 2020.

2 It should be noted, however, that FDI values in some countries, such as the Netherlands, are influenced by the FDI in special purpose entities, through which MNEs channel investments towards their final destination in another country (OECD 2019b).

3 See more about the theories on MNEs’ activities and FDI on the literature review made by Faeth (2009).

4 After consulting the references of the works found at Scopus and WOS, four more papers were collected and analysed.

5 It should be noted that, with the exception of the studies of Basile, Castellani, and Zanfei (2008, 2009) and Majocchi and Strange (2007), all the rest analyse the determinants of FDI from a macroeconomic point of view, that is, using country level data.

6 Note that the country of origin of the foreign shareholder may be another EU country.

7 The full questionnaire is available on request.

8 Given the large size of the target population, it was understood that the most expeditious way to disseminate the questionnaire to a larger number of companies would be through e-mail, so we exclude companies whose email was not provided.

9 The year of establishment after 2010 was chosen to guarantee that the investment was recently made and thereby collect and analyse recent information on the barriers to FDI in the European Union.

10 For instance, Sunesen and Grunfelder (2018) highlights the case of the UK that during the global crisis of 2008–2009 and after-crisis period was capable to attract a great share of non-EU FDI inflows, which may explain why the UK is well represented in the sample. Germany also attracted a high value of FDI inflows (Sunesen and Grunfelder 2018). Furthermore, Ireland and Southern European countries, such as Greece, Portugal, Spain and Cyprus, were the most affected by the financial crisis (Zamora-Kapoor and Coller 2014; Georgia and Theodore 2018). In the case of Greece, FDI inflows decreased from about 4500 million US dollars in 2008 to only 330 million US dollars in 2010 and although it registered an increase from 2011, in 2017 it had not reached yet the value registered in 2008 (OECD 2019a). Also according to OECD (2019a) statistics, FDI inflows in Belgium fell from more than 78000 million US dollars in 2011 to 6500 million US dollars in 2012 and to negative numbers in 2014, and in Sweden fell from more than 36000 million US dollars in 2008 to only 141 million US Dollars in 2010 and less than8000 million US dollars in 2013, 2014 and 2015. This reduction in FDI inflows in some countries may help explain why they are not represented in the sample.

11 Taking into consideration the European Commission recommendation of 6 May 2003 (European Commission 2003), small firms have between 10 and 49 employees, medium-sized firms have between 50 and 249 employees and large firms have 250 or more employees.