FDI in Services in European Regions: An Overview

In the last two decades, services have emerged as the largest and most dynamic component of GDP in most developed countries. While consumer services mainly satisfy final demand, a large share of the output of business services sectors is used as an intermediate input in the manufacturing sector. It is therefore often claimed that the opening of services sectors to international competition would not only benefit the services sectors themselves but also downstream manufacturing sectors. One channel through which such benefits may materialize is through the international relocation of efficient services firms to economies in which the services sector is comparatively less efficient. Similar to FDI in goods, the European Union (EU) represents the largest market for services FDI. This paper offers a comprehensive view of the composition, spatial distribution and determinants of foreign investment across the EU regions and allows assessing the “missed opportunities” for intra-EU FDI due to the existence of residual restrictions to free circulation of some services and persisting differences in national regulations that prevent the full functioning of the single market