Determinants of FDI Inflows in the Nordics : with considerations for European Union Integration

Abstract:     The purpose of this report is to determine whether specified FDI determinants have had a significant impact on the FDI inflows to the Nordic countries, and whether EU integration plays a significant role in attracting FDI in the context of small open European economies.     This study evaluates the impact of various determinants including EU integration on FDI inflows in the Nordic economies using a modified trade model analysis. The study captures annual observations in a panel data format spanning 1988-2018 for a total of 124 observations (31 years x 4 countries). Norway is an outlier in the grouping of countries, having not partaken in the European Union directly via membership. The country has traditionally followed an isolationist approach and instead elected to join the European Economic Area (EEA) in 2004. Meanwhile, Denmark joined the EU 22 years earlier (in 1973, when still referred to as the European Economic Community) than Sweden and Finland which joined on January 1st, 1995.     The following analysis contains multiple limitations which potential readers should be aware of. First, this study only evaluates inflows while excluding both FDI outflows and net flows from consideration. Second, the origin of the evaluated FDI inflows to the Nordics are disregarded lying outside the scope of this study. Additional limitations to the analysis also include a limited sample size due to data unavailability, lack of considerations for remittances, and scope of study that is specific to four Nordic countries.