Macroeconomic Determinants of European FDI Outflows - An Empirical Approach

Abstract

The aim of this thesis is to investigate the effect of country specific characteristics on foreign direct investment (FDI) outflows of ten European countries. The macroeconomic determinants included in the study are income, technology, the current account balance, openness of economy and exchange rate. Previous studies and theories implies that the relationship between these variables and FDI outflows should be positive. This is therefore our expected results. In order to test this hypothesis we use time series analysis, with an annual frequency of the data. We have a total of 34 observations from 1980-2013. Openness of economy was found to be the most important determinant, since it was statistically significant for several countries. It was also the variable which corresponded the most with our expectations. However, the overall results are inconclusive, and suggests that macroeconomic characteristics may not be good determinants of FDI outflows.