The Implications for FDI Location of Future EU Enlargement
EU enlargement will have consequences for where foreign investment is made. Colin Wren (Newcastle University) examines past enlargements and draws conclusions about future ones: which countries will be most attractive to invest in as the EU grows? (2025:2epa)
Foreign direct investment (FDI) contributes to economic development, creates jobs and leads to increased trade. A key driver of EU enlargement is the desire of candidate countries to attract this type of investment. In this European Policy Analysis, Colin Wren, Emeritus Professor of Economics at Newcastle University, examines the link between EU accession and the ability to attract foreign capital.
The analysis takes the fifth round of EU enlargement in 2004 and 2007 as its starting point. The author finds that EU membership contributed to an increase in foreign direct investment in the countries that joined. The investments also led to economic development in the countries, through increased trade and higher employment. In the more liberalised countries, these effects were visible even before they formally joined the EU.
Key drivers of foreign direct investment in eastern and central European countries were
-
Proximity to the EU single market
-
Low production costs
-
Good transport links
Based on these observations, the author argues that today's candidate countries in the Western Balkans will attract FDI and act as an export platform within the enlarged single market. Investment is likely to lead to increased trade and employment.
The author concludes that future EU enlargement will affect the way foreign direct investment is made. In particular, border regions in the new Member States and more liberalised candidate countries will benefit.