Foreign Direct Investment in the European Community: Some Policy Issues

Abstract

Four main conclusions stand out from the analysis. First, we conclude that the motivations behind foreign direct investment (FDI) raise issues of principle for competition policy but are too general to warrant attention. Second, we find that the pattern of investment across industries in the EC is consistent with the hypothesis that foreign firms might locate in the Community to source domestic technology. Third, we discuss the potential conflicts that may arise between national authorities in the implementation of competition policy. Fourth, we find that the subsidies awarded by European governments to attract foreign investments are large; some simple calculations suggest, however, mat these subsidies might not be excessive when labour market conditions in the domestic economy are particularly poor.

Keywords: Foreign direct investment, Technology sourcing