DP798 | Foreign Direct Investment in the European Community: Some Policy Issues

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This paper analyses three policy issues associated with foreign direct investment flows in the European Community. First, we find that recent FDI flows raise concerns that the technology of EC firms might be sourced by foreign competitors. Second, we analyse appropriate institutions for settling international conflicts over the control of foreign direct investment, and regarding foreign acquisitions in particular. We conclude that if centralization is adequate to deal with external effects within the EC, an agreement on rules to allocate jurisdiction might suffice to deal with potential conflicts with third countries. Finally, we discuss the role of European competition policy in monitoring the intervention of member states towards FDI; we find that current subsidies to attract investment are not excessive in the presence of strong distortions in the labour market.