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Impact of electricity prices on foreign direct investment: Evidence from the European Union

Author

Listed:
  • Bartekova, Eva

    (UNU-MERIT)

  • Ziesemer, Thomas

    (UNU-MERIT)

Abstract
In the course of recent years growing concerns over increasing energy prices have emerged in the context of maintaining Europe’s international competitiveness. In particular, rising electricity price differentials adversely affect firms’ total production costs and ultimately impact their investment decisions. Nonetheless, electricity prices as locational determinants of foreign direct investment (FDI) have received little attention in the literature so far. We address this gap by including electricity prices in the traditional framework of FDI analysis and examine the impact of price variation on net FDI inflows in countries of the European Union (EU). We use a panel of 27 countries for a period of 2003 - 2013 and system generalised method of moments (GMM) as method of estimation. The main findings of the paper confirm that besides tax rates, unit labour costs and competitive disadvantage in secondary education, also electricity prices contribute to eroding competitiveness of the countries. Yet, the effect of electricity prices does not seem to be uniform across the EU. In fact, southwestern countries tend to be more adversely affected than north-eastern, both in the short and long run.

Suggested Citation

  • Bartekova, Eva & Ziesemer, Thomas, 2015. "Impact of electricity prices on foreign direct investment: Evidence from the European Union," MERIT Working Papers 2015-021, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    • Handle: RePEc:unm:unumer:2015021
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    Cited by:

    1. Loughran, Tim & Vijh, Anand M, 1997. "Do Long-Term Shareholders Benefit from Corporate Acquisitions?," Journal of Finance, American Finance Association, vol. 52(5), pages 1765-1790, December.
    2. Gert Bijnens & Jozef Konings & Stijn Vanormelingen, 2022. "The impact of electricity prices on European manufacturing jobs," Applied Economics, Taylor & Francis Journals, vol. 54(1), pages 38-56, January.
    3. Suborna Barua & Junnatun Naym & Hazera-Tun-Nessa, 2017. "Economic Climate, Infrastructure and FDI: Global Evidence with New Dimensions," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 16(1), pages 31-48, June.
    4. Tri Wahyu Adi & Eri Prabowo & Oetami Prasadjaningsih, 2022. "Influence of Electricity Consumption of Industrial and Business, Electricity Price, Inflation and Interest Rate on GDP and Investments in Indonesia," International Journal of Energy Economics and Policy, Econjournals, vol. 12(3), pages 331-340, May.
    5. Carfora, A. & Pansini, R.V. & Scandurra, G., 2021. "The role of environmental taxes and public policies in supporting RES investments in EU countries: Barriers and mimicking effects," Energy Policy, Elsevier, vol. 149(C).
    6. Xiaojie Yu & Duminda Kuruppuarachchi & Sriyalatha Kumarasinghe, 2024. "Financial development, FDI, and CO2 emissions: does carbon pricing matter?," Applied Economics, Taylor & Francis Journals, vol. 56(25), pages 2959-2974, May.
    7. Aamir Khan & David Kalisz, 2024. "Post-Acquisition Operating Performance of Acquiring Firms following Cross-Border Mergers and Acquisitions," Economies, MDPI, vol. 12(7), pages 1-14, July.
    8. Grafström, Jonas, 2023. "Spark of Transformation: The Impact of Electricity Prices on Europe's Industrial Landscape – Introducing the Green Industrial Location Attractiveness Index (GILAI)," Ratio Working Papers 369, The Ratio Institute.
    9. George E. Halkos & Apostolos S. Tsirivis, 2023. "Electricity Prices in the European Union Region: The Role of Renewable Energy Sources, Key Economic Factors and Market Liberalization," Energies, MDPI, vol. 16(6), pages 1-20, March.
    10. Kodad Rajaa & Jingfeng Yuan & Lei Zhang & Junwei Ma & Lei Zhang, 2021. "External Factors Affecting Investment in Overseas Electric Power Projects," Springer Books, in: Gui Ye & Hongping Yuan & Jian Zuo (ed.), Proceedings of the 24th International Symposium on Advancement of Construction Management and Real Estate, pages 1455-1472, Springer.

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    More about this item

    Keywords

    foreign direct investment; electricity prices; European Union; generalised method of moments;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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