Foreign direct investment (FDI), in new facilities and cross-border mergers and acquisitions, has been an important driver of globalisation.
Despite the growing importance of emerging economies as hosts to foreign-owned firms, the EU remains the largest investor and recipient of FDI.
In 2013, FDI inflows to the EU increased by 14% to USD 246 bn compared to 2012 when an exceptionally low volume of inflows was registered. Both inflows and outflows of foreign direct investment remain significantly below their 2007 peak.
Within the European Union, FDI flows are a crucial element for the consolidation of the Single Market, while investments to and from the rest of the world ensure that the EU is well positioned in world markets and able to profit from 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 around the world according to the advantages they offer. Therefore, FDI is at core of the international fragmentation of production activities, within global value chains.
Attracting FDI from the rest of the world has become an increasingly important challenge for the EU since the financial crisis. Therefore, policies aim to make the EU more attractive by:
The European Commission outlined its approach for the EU's future investment policy in its Communication "Towards a comprehensive European international investment policy" in 2010. This policy contributes to the objectives of smart, sustainable and inclusive growth, set out in the Europe 2020 Strategy.
Additionally, a fully operational Banking Union should provide a stronger foundation for cross-boarding capital flows in general.
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 performs economic analysis on the impact of FDI, to provide advice to Member States while promoting the sharing of best practices.
For more papers on FDI and related topics go to ECFIN publications.