The global financial crisis and FDI in Europe

The goal of this current research is to study the impact of the global financial crisis on foreign direct investment (FDI) in Europe. The analysed period runs from 1990 through 2010, and the applied method is the gravity model approach. This research compares three economic factors as follows: FDI flows, FDI stocks, and portfolio-equity capital flows. Findings show larger investment share in the form of FDI (10% or more of voting stock) to be subject to different factors than portfolio equity (less than a 10% of voting-stock share). Companies on the stock market have had significant effects on portfolio equity in EU countries since the financial crisis. This is logical, since it makes more firms on the stock market more attractive for portfolio investors. Since FDI stocks have accumulated FDI flows over the years, similar variables influence both. Both before and after the crisis, trade is drawing FDI to the EU countries, as well as drawing investment opportunities associated with firms on the stock market and economic wealth. However, for non-EU countries the effects are not as visible and even contrary. A comparison of regression estimates for the three investment forms indicates that trade-bloc status and governmental reaction to the crisis influence economic outcomes.