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FDI Inflows Analysis: Europe's Competitiveness and Attractiveness Perspective

Explore the dynamics of Foreign Direct Investment (FDI) in Europe, delving into competitiveness and attractiveness factors influencing FDI inflows. Gain insights into the Lucas Paradox and why capital doesn't flow from rich to poor countries. Discover how human capital, market imperfections, and geographical factors impact FDI patterns in Europe. Uncover nuances in Robert Lucas' analysis and the evolving landscape of FDI in Western economies.

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FDI Inflows Analysis: Europe's Competitiveness and Attractiveness Perspective

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  1. FDI inflows : is Europe Still attractive? Gilles Ardinat Paul Valéry University (Montpellier/France)

  2. Competitiveness and attractiveness, two major concepts in public discourse. • An active regional marketing to attract FDI. • AFII : Agence française pour les investissements internationaux (French Agency for International Investment). • UKTI : United Kingdom Trade & Investment.

  3. FDI definition (World Bank) • «Foreign direct investments are the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments »

  4. The « Lucas Paradox » • Robert Lucas • The American Economic Review : Why Doesn't Capital Flow from Rich to Poor Countries? The standard neoclassical theory predicts that capital should flow from rich to poor countries (May 1990).

  5. The « Lucas Paradox » • «The Law of Diminishing Returns implies that the marginal product of capital is higher in the less productive (i.e., in the poorer) economy. If so, then if trade in capital good is free and competitive, new investment will occur only in the poorer economy, and this will continue to be true until capital-labor ratios, and hence wages and capital returns, are equalized ».

  6. The « Lucas Paradox » « If this model were anywhere close to being accurate, and if world capital markets were anywhere close to being free and complete, it is clear that, in the face of return differentials of this magnitude, investment goods would flow rapidly from the United States and other wealthy countries to India and other poor countries ».

  7. Why Doesn't Capital Flow from Rich to Poor Countries? • Differences in Human Capital. • External Benefits of Human Capital. • Capital Market Imperfections.

  8. The end of the « Lucas Paradox »? • «Geography is a pictorial representation of the entire known world, as well as phenomena that take place on it» Ptolemy • Dominant representations still remain favorable to Europe. • In fact all the western economies are in huge FDI deficit. • Lucas analysis have to be nuanced.

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