Bruno, RL; Campos, NF; (2010) Capital Flows to Converging European Economies: Crises, Reforms and Foreign Direct Investment. In: Capital flows to converging European economies – from boom to drought and beyond: Proceedings to the workshop held on 1 October 2010. (pp. pp. 33-65). European Commission: Directorate-General for Economic and Financial Affairs: Brussels, Belgium.

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Abstract

This paper examines the determinants of foreign private capital inflows in Europe. Using the Hausman-Taylor panel estimator and data for the 27 European Union members, yearly since 1990, it compares determinants of capital flows into old (EU15) vis-à-vis new Member States (NMS). In addition to standard factors (infrastructure, institutions, etc.), it focuses on the relative roles of economic crises and structural reforms. Three main conclusions emerge: (1) since 1990, NMS have received more inflows than the EU15, of which mostly is FDI, but the variance of these inflows is larger (until 2007) in NMS than in the EU15, (2) infrastructure, market size and institutions affect inflows to both EU15 and NMS, and (3) the negative effects of crises on FDI inflows are significantly stronger in the NMS than in the EU15.

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