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Although the benefits of foreign direct investment (FDI) are well established in the economic literature, there remains a dearth of analysis of its impact within the European integration experience. Inward FDI is a major contributor to the diffusion of managerial best practices (Bloom et al 2012). It increases competition and shores up technological innovation (Alfaro et al 2004, Dhingra et al 2016). Also it should be more resilient than other international capital flows. Yet the literature estimating the FDI premium from EU membership remains scarce. European integration may have played a significant role and we need to get a good grasp of its effects.
Another reason to examine this issue is the comparison between the trade and the FDI impact of deep economic integration, of which the European integration experience is a textbook example. [...]
This column reports new estimates of the FDI premium from EU membership. Authors find that, between 1985 and 2013, EU membership increased FDI inflows by 28% (Bruno et al. 2016). This is a large, significant, and memorable effect – a percentage point for each of the 28 EU members. Our estimates for the FDI premium are robust and they range from 14% (Heckman) to 33% (OLS) to 38% (Poisson estimates). They survive the Glick-Rose critique and do so comfortably. However, and more importantly, they help advocate for FDI as a channel (in addition to trade) for delivering substantial payoffs from deep integration. [...]