The Impact of Foreign Direct Investments on the Swedish Housing Market

Abstract: Foreign direct investments (FDI) are a crucial part of the world economy as the world has become increasingly globalized. Foreign investment can have a positive impact on the host country in many ways, such as economic growth, new technologies, and job opportunities. In the housing market, FDI can provide new housing and new options, but it can also lead to rapidly increasing housing prices. This paper sought to examine the impact of FDI on the Swedish housing market by doing a multiple regression analysis examining the relationship between FDI into the Swedish real estate sector and Swedish housing prices. The interest rate, inflation rate, and GDP per capita was used as control variables. Data was acquired from Statistics Sweden, the OECD and the Swedish central bank between 2008 and 2022. The augmented Dicky-Fuller test was used to test the data for stationarity at level and first difference. Inflation was not stationary at the first difference but at the second difference, meaning that the first difference (the change in inflation) was used instead of inflation itself. The variables were then tested for cointegration before the regression output was analyzed. The results show that FDI is significant and has a positive impact on Swedish house prices. The interest rate and the change in inflation were also significant, while GDP per capita was not significant. We recommend that policymakers monitor the flow of FDI and be cautious of speculative inflows that aim for an immediate return on investment, since FDI has numerous beneficial effects on various aspects of the economy.