Search

Begin New Search Topic Foreign Direct Investment

1. Economic implications for Europe of a potential reintegration of Iran into the world economy

Author:
Gabriel Felbermayr, Mahdi Ghodsi, Heider Kariem, Robert Stehrer, and Yoto V. Yotov
Publication Date:
02-2026
Content Type:
Special Report
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
How would fundamental political change in Iran, leading to a democratic system with a free and rules-based economic order, affect Germany and the EU economically? In the event of change, sanctions could be scaled back, allowing Iran to rejoin the global economy. This study quantifies the economic effects of such a transformation. It neither advocates for nor legitimises the lifting or easing of sanctions under the current regime or without far-reaching and credible reforms that fully address the concerns underlying the sanctions currently in place. Using the newest available data and quantitative methods, the results indicate that lifting EU sanctions alone could raise Iran’s real GDP by more than 80% in the long run while generating moderate but economically meaningful gains for Germany and the EU of around 0.3-0.4% of GDP. These gains are driven by expanded trade, lower energy and input prices, and improved allocative efficiency. When sanctions removal is combined with plausible scenarios of productivity catch-up with Turkey or South Korea, Iran’s GDP would increase by 240-388% and the gains for Europe would increase further, underscoring the strong complementarity between trade integration and productivity growth. Moreover, Iran’s reintegration would reduce energy price volatility, improve the security of maritime trade routes, and lower migration pressures. Overall, the findings suggest that a negotiated transition and rules-based reintegration of Iran would generate substantial mutual economic benefits while contributing to regional and global stability.
Topic:
Markets, Political Economy, Foreign Direct Investment, Sanctions, European Union, Economy, Inflation, Energy, and Trade Integration
Political Geography:
Europe, Iran, and Germany

2. Outward FDI and Hollowing-out: Towards the Strategic Reallocation of Korean Industries

Author:
Nam Seok Kim
Publication Date:
02-2026
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
Following a prolonged period of negotiations under the “reciprocal tariff” regime, Korea, similar to other major exporters like the European Union and Japan, secured reduced tariff rates conditional upon committing to large-scale local investments in the United States. The U.S. administration has consistently placed the reconstruction of American manufacturing and domestic job creation at the top of its policy agenda. This commitment is so steadfast that Washington recently hinted at the possibility of re-imposing higher tariffs, citing Korea’s lukewarm implementation of the agreed-upon investment pledges. Crucially, this surge in investment is not merely a political concession but reflects a fundamental restructuring of global value chains. As geopolitical uncertainties intensify, Korean firms are pivoting from a traditional strategy of cost minimization to one of risk minimization. By establishing production bases directly within the United States, these companies aim to insulate themselves from future trade barriers and secure stable access to their most critical market, effectively decoupling their supply chains from geopolitical flashpoints. The scale of capital Korea has pledged to invest locally in the U.S. is staggering, potentially large enough to induce fundamental shifts in the valuation of the Korean won. The bilateral agreement encompasses a monumental package: USD 200 billion in direct cash investments and USD 150 billion in shipbuilding cooperation. These plans are rapidly materializing, evidenced by the U.S. government’s recent release of “America’s Maritime Action Plan,” which explicitly designates Korea as a key partner in rebuilding U.S. naval and commercial maritime capabilities. Beyond the maritime sector, this investment wave spans across Korea’s core strategic industries, including semiconductors, electric vehicle batteries, and advanced electronics. Major Korean conglomerates are rapidly breaking ground on large-scale manufacturing facilities across key U.S. states. This broad-based migration of manufacturing capacity signifies a deep integration of Korea’s industrial ecosystem with the U.S. supply chain, moving far beyond simple assembly operations to include high-value-added production processes. It is unprecedented for Korea to execute outward FDI (OFDI) of this magnitude based on a bilateral government agreement. Consequently, this unparalleled volume of capital outflow has sparked intense debate and varied projections among economists regarding its potential impact on the domestic economy.
Topic:
Foreign Direct Investment, Tariffs, Exports, Industry, and Semiconductors
Political Geography:
Asia, South Korea, and United States of America

3. The European Screening Mechanism and Its Implications for Chinese FDI

Author:
Emanuele Ballestracci
Publication Date:
02-2025
Content Type:
Commentary and Analysis
Institution:
Istituto Affari Internazionali
Abstract:
The European Commission has recently proposed a revision of the EU foreign direct investment (FDI) screening mechanism, originally established in 2020. The aim is to further strengthen the EU’s economic security within the framework of its “de-risking” policy, which aims to manage risks coming from the economic and technological engagement with China.[1] The new proposal aims to address major shortcomings in the current screening mechanism, expanding its scope to greenfield investments and European outward FDI. However, this could conflict with the EU’s goal of encouraging Chinese greenfield investment and joint ventures, particularly in the electric vehicle (EV) sector.
Topic:
Science and Technology, Foreign Direct Investment, European Union, and Economic Security
Political Geography:
China, Europe, and Asia

4. Untethered Sentiments: How Politics, Visibility, Perception, and Demographic Differences Shape American Views on Foreign Investment and Trade

Author:
Je Heon (James) Kim and Nils Wollesen Osterberg
Publication Date:
05-2025
Content Type:
Special Report
Institution:
Korea Economic Institute of America (KEI)
Abstract:
The key takeaways from this study are as follows: 1. Impact of Perception on Foreign Investment Attitudes: The study finds that individual perceptions of FDI at the state level play a crucial role in shaping attitudes toward investment. Individuals who perceive high Korean FDI or states where Korean FDI has more visibility tend to have more favorable views toward foreign investment compared to those in states with low FDI or visibility of such investments. This finding highlights the importance of strategic communication and visibility in shaping public perceptions of foreign investment. Simply increasing investment is not enough; companies and governments must actively promote their contributions to local economic growth and job creation to gain broader public support. 2. Variation in Support Based on Country of Origin: While most Americans view foreign investments as beneficial, attitudes differ based on the investing country’s origin. Investments from South Korea, Japan, and Germany, for instance, are viewed more favorably than investments from China and Russia. 3. Political and Ideological Divides in Trade and Tariff Attitudes: The data reveals partisan differences regarding trade and tariffs. According to our data, a substantial majority of Republicans—at the time of this survey—favor tariffs, mirroring their party leader’s policies. Meanwhile, a minority of Democrats expressed similar support for the use of tariffs. 4. Dissonance on Trade and Tariffs: Despite broad support for U.S. participation in international trade, a significant portion of respondents also favor maintaining or increasing tariffs, suggesting support for the theoretical benefits of trade and protectionism. Evidence suggests that partisan or ideological drivers may be at work. 5. Demographic Influences on Trade and Investment Opinions: Factors such as gender, age, income, and education significantly impact trade attitudes. Younger individuals, higher-income earners, and those with higher education levels are more supportive of open trade, while lower-income and older individuals are more skeptical. 6. Reciprocity as a Key Factor in Investment Policy Preferences: Many Americans favor restrictions on inbound foreign investment unless similar restrictions are removed for U.S. investments abroad, highlighting the importance of the reciprocal approach to trade and investment policies. 7. Limited Influence of Job Creation on Investment Preferences: While respondents recognize that foreign investments create jobs, this factor alone does not significantly sway opinions on investment restrictions, as other economic and political considerations often take precedence. 8. Defense Industrial Cooperation and Export Control Concerns: A majority of respondents support maintaining or increasing restrictions on defense-related industrial cooperation, emphasizing national security concerns over economic benefits from defense-related investments and trade.
Topic:
Politics, Science and Technology, Foreign Direct Investment, Trade, and Economic Security
Political Geography:
North America and United States of America

5. The future of Indonesia’s green industrial policy

Author:
Robert Walker and Hilman Palaon
Publication Date:
03-2025
Content Type:
Commentary and Analysis
Institution:
Lowy Institute for International Policy
Abstract:
Indonesia now supplies more than half of the world’s nickel. Under its green industrial policy, it has also become a leading destination for foreign investment in critical minerals, electric vehicles (EVs), and the battery supply chain. While this strategy has offered some concentrated economic gains, rapid industry expansion has also been costly. Nickel processing has had damaging environmental, labour, and governance impacts, and has increased reliance on Chinese investment, technology, and demand, which presents vulnerabilities. Indonesia can strengthen its industrial policy by improving environmental and labour standards in the nickel industry, fostering a more competitive and export-oriented EV industry, and diversifying trade and investment partners.
Topic:
Foreign Direct Investment, Industry, Green Economy, Nickel, and Critical Minerals
Political Geography:
China, Indonesia, and Southeast Asia

6. Peripheral Growth Models and the Global Economy: A Second Image IPE Perspective

Author:
Michael Schedelik and Andreas Nölke
Publication Date:
07-2025
Content Type:
Working Paper
Institution:
Max Planck Institute for the Study of Societies
Abstract:
The paper departs from the perspective of “second image IPE,” i.e., the need to closely combine Comparative Political Economy (CPE) and International Political Economy (IPE). More specifically, it focuses on the observation that the growth models in the (former) periphery of the global economy (a typical focus of CPE) are strongly shaped by their interdependencies with the structural transformations of the global economy (as studied by IPE). At the same time, the changes within the growth models of large economies in this periphery (CPE) can have a major impact on global interdependencies (IPE). For example, the rise of China as a major player in world trade and investment (“China shock”) has had a substantial impact on growth models elsewhere in the periphery, via import penetration, direct investment, and export demand. This paper shows how these growth models shape (and are shaped through) international interdependencies by analyzing (1) the effects of global commodity cycles on the growth experience of several major exporters of primary resources, such as Brazil or Indonesia, during and after the recent commodity boom. (2) We further elaborate on the effects of global financial cycles on peripheral countries, particularly those pursuing debt-led growth models, such as South Africa or Turkey. (3) We finally point to the role of global production chains and foreign direct investment for FDI-led growth models of manufacturing exporters such as Thailand or Vietnam in South East Asia.
Topic:
Political Economy, Foreign Direct Investment, Economy, Economic Growth, Commodities, Emerging Economies, and Growth Models
Political Geography:
Global Focus

7. How does FDI transmit into domestic investment? Exploring intra-industry and financial channels

Author:
Tim de Leeuw and Konstantin M. Wacker
Publication Date:
03-2025
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
Foreign direct investment (FDI) is often seen as a means to boost domestic investment and, hence, capital accumulation. Yet, the empirical support for such a positive investment effect of FDI is inconclusive. A possible reason is that FDI is often directed towards the financial sector, where capital investment tends to be low. In this paper, we first explore the within-industry relationship between FDI and domestic investment. We then use a novel approach to analyse how FDI into the financial sector transmits into domestic investment by non-financial industries. Using industry-level FDI and investment data from 12 Central and Eastern European countries between 1997 and 2019, we find that about a quarter of FDI into an industry results in domestic investment. Additionally, we document that industries with close links to the financial sector increase domestic investment in the presence of financial FDI, particularly manufacturing, trade and real estate.
Topic:
Foreign Direct Investment, European Union, Investment, Capital Formation, and Financial Sector
Political Geography:
Europe

8. Services Liberalization and Product Variety of Manufacturing Firms

Author:
Alina Mulykova
Publication Date:
07-2025
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
This paper investigates the impact of services sector liberalization on product innovation of downstream manufacturing firms. Leveraging firm-product panel data from India and employing a shift-share research design, I find that services liberalization significantly increases firms’ product portfolio. Allowing foreign investments in the banking sector decreases firm’s credit-constraint and increases the amount of interest payments on short-term loans. This shows that services liberalization reduces firms’ fixed costs of product innovation. Firms diversify into input-similar industries which changes the distribution of sales across products with the core product experiencing the most pronounced decline in the sales share.
Topic:
Globalization, Markets, Foreign Direct Investment, Innovation, and Liberalization
Political Geography:
South Asia and India

9. The Instruments of Profit Shifting

Author:
Kevin Parra Ramirez and Vincent Vicard
Publication Date:
11-2025
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
While multinational enterprises (MNEs) shift hundreds of billions in profits to low-tax jurisdictions annually, how they do remains disputed. Using firm-level data for France in 2018, we provide the first joint quantification of the three main profit-shifting channels: transfer mispricing in goods trade, intangible assets and services traded with tax havens, and intra-firm debt. We find empirical evidence for all three instruments, but transfer mispricing dominates quantitatively (€10 billion, 0.4\% of GDP), followed by services (up to €6 billion) and debt (€2 billion). Although significant, these direct estimates account for half of total missing profits in France, as estimated indirectly from the location of MNE profits. We document two key blind spots likely to close this gap: cross-border digital payments by households and understudied debt instruments (e.g., securities).
Topic:
Foreign Direct Investment, Multinational Corporations, Tax Systems, Trade, and Profit Shifting
Political Geography:
Global Focus

10. Drivers of FDI in the EU: Regulatory distance and revealed technological advantage

Author:
Chiara Castelli, Ronald B. Davies, Javier Flórez Mendoza, and Mahdi Ghodsi
Publication Date:
06-2025
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This study examines the interplay between trade policy, in particular non-tariff measures (NTMs), and revealed technological comparative advantage (RTA) at the NUTS 2 level as drivers of foreign direct investment (FDI) over time. Combining data from the Orbis database (Bureau Van Dijk), the NTMs database (WTO I-TIP) and the European Patent Office (EPO PATStat), we construct a comprehensive panel database of European firms owned by foreign-owned EU and non-EU firms. This database includes financial information for both parent companies and their subsidiaries as well as detailed country- and sector-specific trade barriers from the perspective of both the home and host economies. Furthermore, this database allows us to compute tailored RTA variables reflecting firm-specific technological interests proxied by firms’ patent production across technology classes. Using a Poisson pseudo-maximum likelihood (PPML) estimator, our analysis reveals a heterogeneous impact of NTMs and RTAs on FDI investment in the EU regions. Specifically, while increasing the regulatory distance (RD) of technical barriers to trade (TBTs) and sanitary-and-phytosanitary-standard (SPS) measures hampers FDI investment from extra-EU companies, the results on tariffs support the regulatory jumping motive. Furthermore, local technological capabilities significantly support FDI, especially when RTAs reflect the technological interests of the foreign-owned subsidiary, while the effect is reversed when accounting for the innovation portfolio of the parent company.
Topic:
International Trade and Finance, Foreign Direct Investment, European Union, Regulation, and Tariffs
Political Geography:
Europe