Template-type: ReDif-Paper 1.0
Author-Name: Bartekova, Eva
Author-workplace-name: UNU-MERIT
Author-Name: Ziesemer, Thomas
Author-workplace-name: UNU-MERIT
Title: Impact of electricity prices on foreign direct investment: Evidence from the European
	 Union
Abstract: In the course of recent years growing concerns over increasing energy prices have
	 emerged in the context of maintaining Europe’s international competitiveness. In
	 particular, rising electricity price differentials adversely affect firms’ total
	 production costs and ultimately impact their investment decisions. Nonetheless,
	 electricity prices as locational determinants of foreign direct investment (FDI)
	 have received little attention in the literature so far. We address this gap by
	 including electricity prices in the traditional framework of FDI analysis and
	 examine the impact of price variation on net FDI inflows in countries of the
	 European Union (EU). We use a panel of 27 countries for a period of 2003 - 2013 and
	 system generalised method of moments (GMM) as method of estimation. The main
	 findings of the paper confirm that besides tax rates, unit labour costs and
	 competitive disadvantage in secondary education, also electricity prices contribute
	 to eroding competitiveness of the countries. Yet, the effect of electricity prices
	 does not seem to be uniform across the EU. In fact, southwestern countries tend to
	 be more adversely affected than north-eastern, both in the short and long run. 
Keywords: foreign direct investment, electricity prices, European Union, generalised method
	 of moments
Classification-JEL: F21, O52, Q43
Series: UNU-MERIT Working Papers
Creation-Date: 2015
Number: 2015-021
File-URL: https://unu-merit.nl/publications/wppdf/2015/wp2015-021.pdf
File-Format: application/pdf
File-Size: 275 kb
Handle: RePEc:unm:unumer:2015021