Sunday, July 01, 2007


The US remained the biggest originator of inward direct investment in Europe while the UK market consolidated its position as the prime investor target. The European Investment Monitor shows that the level of inward investment flopping into Europe rose up by 15 percent, peaking the record high. France and UK remained top investor targets in 2007 followed by Germany.

Supply-side economic reforms in Romania, boosted the level of inward investment, currently facing a rapid 62,8 percent growth in real terms. France's market share dropped relative to its regional competitors such as UK, after reaching a benign 5 percent growth of inward investment while the UK experience a 22,7 percent growth rate respectively. Interestingly, there is a growing parallel between the growth of FDI and attractiveness of the environment for doing business. The latter includes relative tax burden emerging from high/low/modest corporate tax rate as well the sophistication of business environment in terms of access to global/local supply chains.

The higher the rate of quality of both poles affecting the attractiveness of inward investment location, the higher the probability of increased inflows of foreign direct investment in particular sectors, reflecting comparative advantages. There has been an empirical evidence, saying that, especially in emerging markets as well as elsewhere, foreign direct investment is an important player which promotes economic growth. An interesting aspect of direct inward investment is the rate of job creation.

The numbers show an increasing trend of boosted job creation in sectors where the value-added plays a crucial role in determining the quality of services. In 2006, the number of jobs grew beyond the forecast scenario, especially in software (13,4 percent) and business services (12,6 percent) - two strongly cooperative sectors in the new, digital age of new economy. As the largest recepient of inward software investment, the UK gained a 35 percent market share. The intensity of software inward investment reflects the latest trends and demand behavior in European economies where many sectors are facing crucial restructuring to accelerate the productivity growth and gain competitive edge against globally competitive economies such as India, China and the U.S.

Slovenia, the place where I live, sadly did not attract a single perspective inward investment project despite the competitive prospects of Slovenian market as well as regional potentials. Small size of the economy does not mean lower competitive advantages. If the small size of the economy determined the course of economic growth, then Iceland would probably never sustain high growth during 1990s and emerged as one of the wealthiest western industrialized economy and Switzerland wouldn't probably be the international economic hub with an enviable GDP per capita, ranked 6th on the European investment scale.

Last time, Harrah's Entertainment and HIT Gorica introduced the biggest joint-venture in Slovenia yet, worth 750 million EUR, which shall take place in 2008. Otherwise, investor friendly business, entrepreneurial and corporate legislation is not a title which could be given to Slovenia which, according to the lack of competitiveness and economic freedom, still remains the most socialist country of ex-socialist ones. Sadly but truly, I hope that Slovenians will realize that.

Recommended reading:
Lee Branstetter: Is Foreign Direct Investment a Channel of Knowledge Spillovers? Evidence from Japan’s FDI in the United States (link)

France falters as investor target, Financial Times (link)

European Investment Monitor, Ernst&Young (link)

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