What matters most for FDI attraction in services: country or region performance? An empirical analysis of EU for 1997-2012

The European Union is highly attractive for FDI in services but investment is unevenly distributed across EU countries and regions. This paper explores the issue of disentangling national and regional factors in the location choices of service FDI in the EU for the period 1997-2012. Using a dynamic panel Poisson model, our results support the conclusion by Casi and Resmini (Pap Reg Sci 93(S1):51-78, 2014) that both national and regional performances are considered by foreign investors in services when making their location decisions. However, we emphasize that the interplay between regional and national determinants is not straightforward and varies greatly between sectors and groups of countries. In this respect, the business services sector is close neither to the industrial sector nor to the other services sector, whatever the kind of country: those sectors cannot be considered as a single entity when trying to understand FDI location in services. A similar conclusion can be reached about the location in a region within the EU: depending on whether it belongs to the most attractive group of countries or not for service FDI, the combination of regional and national performances under consideration is not the same for investors. Therefore, implementing uniform economic policies across sectors and places to attract service FDI is likely to be inefficient. Policymakers should design specific measures depending on the type of services they wish to attract and should take into account the characteristics of the area at subnational, national or EU level.