FDI inflows : is FDI inflows : is Europe Still Europe Still attractive?attractive?

Gilles ArdinatGilles Ardinat

Paul Valéry University Paul Valéry University (Montpellier/France)(Montpellier/France)

Competitiveness and Competitiveness and attractiveness, two major attractiveness, two major

concepts in public concepts in public discourse.discourse.

An active regional marketing to attract An active regional marketing to attract FDI.FDI.

AFII : Agence française pour les AFII : Agence française pour les investissements internationaux (investissements internationaux (French French Agency for International Investment)Agency for International Investment)..

UKTI : United Kingdom Trade & UKTI : United Kingdom Trade & Investment.Investment.

FDI definition (World FDI definition (World Bank)Bank)

«Foreign direct investments are the net «Foreign direct investments are the net inflows of investment to acquire a inflows of investment to acquire a lasting management interest (10 lasting management interest (10 percent or more of voting stock) in an percent or more of voting stock) in an enterprise operating in an economy enterprise operating in an economy other than that of the investor. It is the other than that of the investor. It is the sum of equity capital, reinvestment of sum of equity capital, reinvestment of earnings, other long-term capital, and earnings, other long-term capital, and short-term capital as shown in the short-term capital as shown in the balance of payments »balance of payments »

The « Lucas Paradox »The « Lucas Paradox »

Robert LucasRobert Lucas The American Economic Review : The American Economic Review :

Why Doesn't Capital Flow from Rich Why Doesn't Capital Flow from Rich to Poor Countries? The standard to Poor Countries? The standard neoclassical theory predicts that neoclassical theory predicts that capital should flow from rich to poor capital should flow from rich to poor countries (May 1990).countries (May 1990).

The « Lucas Paradox »The « Lucas Paradox »

««The Law of Diminishing Returns implies that the marginal product of capital is higher in the less productive (i.e., in the poorer) economy. If so, then if trade in capital good is free and competitive, new investment will occur only in the poorer economy, and this will continue to be true until capital-labor ratios, and hence wages and capital returns, are equalized ».

The « Lucas Paradox »The « Lucas Paradox »

« If this model were anywhere close to being accurate, and if world capital markets were anywhere close to being free and complete, it is clear that, in the face of return differentials of this magnitude, investment goods would flow rapidly from the United States and other wealthy countries to India and other poor countries ».

Why Doesn't Capital Flow Why Doesn't Capital Flow from Rich to Poor from Rich to Poor

Countries?Countries? Differences in Human Capital. External Benefits of Human

Capital. Capital Market Imperfections.

The end of the « Lucas The end of the « Lucas Paradox »?Paradox »?

««Geography is a pictorial Geography is a pictorial representation of the entire known representation of the entire known world, as well as phenomena that world, as well as phenomena that take place on ittake place on it» Ptolemy» Ptolemy

Dominant representations still remain Dominant representations still remain favorable to Europe.favorable to Europe.

In fact all the western economies are In fact all the western economies are in huge FDI deficit.in huge FDI deficit.

Lucas analysis have to be nuanced.Lucas analysis have to be nuanced.