Does it provoke cross-border investment flows (including relocation of economic activity)?
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This key question focusses on EU participation to international production, as reflected by foreign direct investments (FDIs). These include outward FDIs, that is the acquisition of foreign assets by EU firms, involving the ownership of equity shares in foreign firms and/or the set up of production facilities abroad; and inward FDIs, that is the acquisition of assets by foreign firms, involving the foreign ownership of equity shares in domestic firms and/or the set-up of new production facilities owned by foreign firms and institutions.
Aspects to be considered in order to assess the likely effects of policies on this impact area include: the overall foreign direct investment position of EU economies vis a vis non member countries; the distribution of foreign direct investments by macro-sectors, that is the composition of EU international investments in terms of primary, manufacturing, and service activities; the distribution of foreign direct investments by type of technology, that is the composition of EU international investments in terms of traditional vs. scale intensive or high technology activities; the distribution of foreign direct investments by environmental sensitiveness, reflecting the incidence of international investment in such areas as heavily polluting goods and defence equipment, i.e. product categories which, for their very nature, can have a significant environmental impact; and the geographic distribution of foreign direct investments, looking at the main areas of origin and destination of EU international investment.
The legal framework can affect FDIs by making markets more or less attractive to foreign investors. Public investments in infrastructures and in the creation of "free-trade zones" are examples of policies enhancing in-ward foreign direct investments. Some countries restrict foreign ownership to minority stakes which leave actual control to native entrepreneurs or governments. Home countries can promote or restrict capital outflows by means of fiscal and industrial policies. Exchange rate policies also affect multinational enterprises convenience to buy assets abroad, and they can thus affect both outward and inward FDIs.
This text is for information only and is not designed to interpret or replace any reference documents. The text is partially adapted from:
EC related information:
The following Eurostat Sustainable Development Indicators (Global Partnership) are relevant to address the key question:
- ODA to developing countries, by income group
- FDI to developing countries, by income group
- Official Development Assistance
- Total EU financing for developing countries, by type
Relevant data is also available through the OECD database under the headings:
- JRC: IA TOOLS. Supporting inpact assessment in the European Commission.