European FDI in Ireland and Iceland: Before and after the Financial Crisis

This paper analyses Foreign Direct Investment (FDI) investment in Ireland and Iceland from
other European countries during two periods, i.e., the pre-financial crisis period of 2000–2007 and the
financial crisis period of 2008–2010. The aim of this research is to determine what made the countries
interesting to foreign investors in both good and bad times; and, secondly, to examine whether
European Union membership (and the Euro) made a difference in this respect. The results were
obtained by using data from the OECD, the World bank, and other sources. The model constructed
for the study applies the inverse hyperbolic sine transformation of the gravity model, which is a
novel approach. The results demonstrate that before the financial crisis of 2008, European Union
(EU) membership did not help Ireland attract more FDI from other EU countries. However, once
it had been hit by the crisis, Ireland attracted more FDI from other EU countries. Iceland, on the
other hand, which is not an EU country, attracted FDI from non-EU countries rather than from EU
countries before the financial crisis. After the crisis, however, the origin within Europe, of FDI in
Iceland had no significant effect on the flow of FDI into the country.