FDI in the European Union and Economic Convergence

                                                    ABSTRACT

In an enlarged and with no trade barriers multi country market firms locate value added activities according to national comparative advantages rationalizing production and creating a regionally integrated vertical and/or horizontal production and distribution network. The aim of this paper is to examine the impact of the European economic integration on Foreign Direct Investment (FDI) and in particular on flows within the European Union (EU). The empirical analysis is based on a model that regresses the ratio of intra regional outward FDI to total FDI originated from the EU, the dependent variable to a number of variables approximating the unification and homogenization of the European Union market, the independent variables.   The specification of theses variables is made through a series of convergence-divergence indices related to trade, GDP per capita, productivity, technology, wage level, etc.  Time series data is used for the period 1980-2007.