Globalization, Foreign Direct Investments and Growth in European Regions: An Empirical Assessment

Globalization is acknowledge by scholars of different disciplines – economics, political science, sociology – as one of the most important trends of the last two decades. It has been bringing advantages and disadvantages, whose impact may vary across countries, regions, and also sectors of the economic activity. In this paper we focus on these arguments only as they apply to one of the component of globalization, i.e. foreign direct investment (FDI). In particular, we aim at assessing the different experiences of European regions and countries, as FDI grew and evolved in terms of increasing amount, regional and country concentration and changing composition. In order to achieve this research objective, the paper looks empirically at the relationship between FDI and regions’ economic performance, proxied with regional growth rates. Controlling for potential endogeneity, we found that it is not the quantity of foreign investments that a region is able to attract that matters for its performance, but rather the quality of such flows of investment, proxied with some structural characteristics of the foreign firms. In particular, our findings show that intra-European FDI undertaken in the service sectors have an important positive impact on regional performance, while foreign investment in manufacturing do not exert any effects on regions growth rates.