Determinants of foreign direct investments in European Union countries: Panel data analysis

Globalization and the transition to a free market economy, which have spread all over the world since the end of the 1980s, have brought along financial liberalization. Capital flows between countries have emerged in different ways. One of these is foreign direct investments. Among European countries, especially Central and Eastern European countries, which are called 'transition economies', are among the countries receiving foreign direct investments intensively. Which economy these investments will be directed to and how the direction is determined is an important question, especially for countries in need of capital inflows. In this study, the determinants of foreign direct investments in the period 2002 - 2023 are tested for twenty-seven member countries of the European Union. For this purpose, a series of panel econometric methods are used and unit root, cointegration and causality analyses are performed respectively. According to the results obtained, it is concluded that the variables considered are more effective in transition economies rather than developed countries and that the results differ for each country.