Determinants of Foreign Direct Investment in Portugal

Abstract

The Portuguese economy has been a net recipient of FDI and the Portuguese Government has had to attract more FDI. Understanding the main determinants of FDI is important to take macroeconomic policy decisions. Based on the investment demand model, this manuscript analyzes the impact of variables, such as, market size, labour cost, openness trade, and economic stability. The paper applies a static and dynamic panel data approach (Fixed Effects estimator and GMM system estimator). Our results support the hypothesis that the market size and openness trade are significant factors to explain FDI flows into Portugal. The wage and taxes are also statically significant.

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