This article examines the impact of membership in the European Union (EU) on foreign direct investments (FDI). In contrast
to previous studies, the overall effect of EU membership is disaggregated by countries that joined the EU before 2004 (EU
15) and those that joined after 2004 (Central and Eastern European – CEE). This disaggregation is motivated by differences
between the two groups in terms of their historical background, GDP levels and motives for FDI. Furthermore, the effects of
EU membership are estimated at the country level. Using a structural FDI gravity model and applying recent advances in the
gravity estimation literature, it is shown that membership of the EU has a substantial positive impact on both inward and
outward FDI stocks. In particular, there is considerable heterogeneity in the impact of EU membership, with EU 15 countries
experiencing mainly an increase in inward FDI, while CEE countries experience a surge in outward FDI.
Research group:Industrial, Innovation and International Economics