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Foreign direct investment

Foreign direct investment (FDI), via green-field investment and cross-border mergers and acquisitions, is an increasingly important driver of globalisation.

The European Union is the world's largest investor abroad. Despite the growing importance of emerging economies as hosts to foreign-owned firms, the EU also remains the largest recipient of FDI. Within the Union, FDI flows are a crucial element for the consolidation of the internal market, while investments to and from the rest of the world ensure that the EU is well positioned in world markets and well integrated in worldwide technology flows.

Furthermore, rapid technological progress, particularly in transport and information and communication technologies, increasingly allows firms to separate and reorganise their production processes, locating different parts of their activities at sites around the world according to the advantages they offer. Therefore, FDI is at core of the international fragmentation of production activities, which is changing the location of economic activities across the world.

Currently, within the EU, the inward FDI stock is still largely concentrated in the EU-15 Member States. These offer good market access, scope for linkages to strong industrial bases, and well-educated labour forces However, in the years before the crisis, the most dynamic part of FDI flows within the EU was between the EU-15 and the new Member States. As several of the new Members States have been hard hit by the crisis, this trend has partly been reversed in the last two years.

Promoting FDI

Attracting inward FDI from the rest of the world is an increasingly important challenge for the EU as there are signs that it is losing ground in terms of its attractiveness to foreign investors. This trend seems to have been reinforced by the crisis. Therefore, policies aim to make the EU more attractive by extending and deepening the single market, ensuring open and competitive markets inside and outside Europe, improving European and national regulation, and expanding and upgrading Europe's infrastructure and its scientific base. The recently established EU 2020 will contribute to this goal. In addition, from the 1st December 2009, the Lisbon Treaty brought investment policy within the sphere of policy areas developed at the European level. The European Commission has now issued two related documents:

  1. a Communication that discusses how this policy area should be used to increase EU competitiveness and create growth and jobs in Europe; and
  2. a draft regulation which is designed to manage the transition towards a new EU comprehensive investment policy, notably by providing legal security for national bilateral investment treaties.
    The Commission's Directorate-General for Economic and Financial Affairs closely analyses the evolution of world FDI flows and the performance of the EU and its Member States as investors and recipients of FDI. It also monitors economic analysis on the impact of FDI, to provide advice to Member States while promoting the sharing of best practices.