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Global Capitalism, FDI and Competitiveness

The Selected Essays of John H. Dunning, Volume II

John H. Dunning

Global Capitalism, FDI and Competitiveness comprises 15 of John Dunning’s most widely acknowledged writings on the changing characteristics of the global economy over the past three decades. In particular, it examines how these events have shaped, and been shaped by, the growing internationalization of all forms of business activity.
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Chapter 10: The European Internal Market Program and Inbound Foreign Direct Investment

The Selected Essays of John H. Dunning, Volume II

John H. Dunning


* INTRODUCTION This chapter considers the impact of the completion of the European Internal Market Program (IMP) on the geographical distribution of economic activity within the European Community (EC).1 More particularly, it assesses the empirical validity of a number of hypotheses, drawn from FDI theory on the likely effect of the removal of tariff barriers on intra-EC and extra-EC trade and FDI flows, and the relationship between the two. The evidence strongly suggest that the twin forces of regionalization and localization identified in Chapter 3 have been accelerated as a result of recent European integration; and that the balance between the two is strongly determined by the knowledge intensity and mobility of the economic activities involved. EUROPEAN INTEGRATION PRIOR TO 1985 During the late 1960s and 1970s, there were several scholarly attempts to assess the impact of the European Common Market (ECM) – the first phase of macroeconomic regional integration within the European Community (EC), on foreign direct investment (FDI).2 Although their results were sensitive to the data and the econometric models chosen, all the studies supported the proposition that, while the removal of intra-tariffs, and the establishment of a common external tariff, increased both intra- and extra-FDI – and sometimes significantly so3 – other determinants of FDI (e.g. market size, market growth, relative factor costs, agglomeration economies, etc.) were at least as, if not more, important, particularly once the initial (and sometimes once-for-all) effects of the ECM had worn off.4 Furthermore, the studies showed that the impact of European integration (hereafter...

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