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Journal of Economic Integration 2020 September;35(3) :426-456.
DOI: https://doi.org/10.11130/jei.2020.35.3.426
A Gravity Model Analysis of FDI across EU Member States
Alena Dorakh 
Trier University, Germany
Corresponding Author: Alena Dorakh ,Email: s4aldora@uni-trier.de
Copyright ©2020 Journal of Economic Integration
ABSTRACT
While recent debates about European integration focus mainly on the losses from dissolutions, a remarkable rise in foreign direct investment (FDI) in the accession countries has become increasingly evident as a benefit of the European Union (EU) membership, which makes EU membership a key FDI determinant.By applying an augmented gravity model (rather than standard gravity variables), covering 39 host and home countries over 1991-2017, we investigated specific factors in explaining FDI inflows, with a focus on the new member EU states.Empirically, we created a series of ordinary least squares and Poisson Pseudo-Maximum-Likelihood models to account for all country-time-specific and country-pair factors.This paper verifies that EU membership has a positive and significant effect on FDI, between 1991 and 2017 FDI inflows became greater, on average, by approximately 23%.After EU enlargement, more FDI came from EU members to the new EU member countries and less came from non-EU member countries.

JEL Classification
F15: Economic Integration
F21: International Investment; Long Term Capital Movements
O52: Europe
Keywords: FDI | new member EU states (NMS) | zero flows | fixed effects | Chinese investment
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