The Dilemmas of EU Competitiveness

Foreign Direct Investment and Foreign Trade

Authors: Tamás Csontos, Andrea Éltető, Magdolna Sass

In: Európai Tükör 2024/4

DOI: 10.32599/et.2024.4.1

Abstract

Despite the prevalence of discourse surrounding the concept of competitiveness, recent reports on the European Single Market and competitiveness frequently neglect to underscore the pivotal role of foreign direct investment (FDI) and foreign trade. The present study aspires to address this gap by undertaking a comprehensive analysis of FDI and foreign trade trends within the European Union (EU) from 2005 to 2023. This analysis will be conducted by comparing these trends with those observed in the United States and China, in addition to examining the EU’s internal economic dynamics. The statistical analysis reveals a multifaceted relationship between FDI, foreign trade, and the EU’s competitiveness. Significant variations in the EU’s FDI structure are identified: inward and outward investments exhibit different growth rates, and certain member states function as intermediaries, which can result in resource allocation challenges. In the context of foreign trade, the EU confronts mounting competition from China, persistent internal trade imbalances, and a continued reliance on substantial foreign value-added content. While the EU performs well in service exports and medium-tech manufacturing, it lags behind in high-tech and primary product exports. The study concludes that the development of a comprehensive competitiveness strategy is essential to address these challenges and enhance economic resilience.