Einar H. Dyvik
Research expert covering Nordics and global data for society, economy, and politics
Foreign direct investment (FDI) in Europe - statistics & facts
Foreign direct investment (FDI) plays an important role in the European economy, with the stock of direct investments in the EU being worth almost 12 trillion U.S. dollars. FDI projects also create hundreds of thousands of jobs each year and foreign affiliates are a vital source of innovation and growth in the European economy. Conversely, Europe is one of the leading regions for outward foreign direct investment, with the stock of outward FDI from the European Union being worth 14.5 trillion U.S. dollars in 2024. Foreign direct investment is generally defined as an economic actor in one country making an investment in another country which establishes a lasting interest and requires the investor to take up an active role in the management of the acquired firm, rather than foreign portfolio investment (FPI) where the investor has a passive financial interest in the target company.
FDI allows foreign companies to more easily compete in the domestic market, while the domestic economy is boosted by this investment, both in terms of increasing production, as well as in boosting human capital of domestic workers and fostering technology transfer. Key examples of FDI in Europe in recent years include American car-maker Tesla's investments in its production facilities in Eastern Germany, while the company's Chinese rival BYD opted to invest in Hungary. Foreign-controlled enterprises, particularly those in the banking, finance, pharmaceutical, and technology industries, play an outsized role in the economies of several smaller European countries, with foreign companies being attracted to invest in countries such as Luxembourg and Ireland due to their more lenient investment, taxation, and corporate governance regimes.
FDI allows foreign companies to more easily compete in the domestic market, while the domestic economy is boosted by this investment, both in terms of increasing production, as well as in boosting human capital of domestic workers and fostering technology transfer. Key examples of FDI in Europe in recent years include American car-maker Tesla's investments in its production facilities in Eastern Germany, while the company's Chinese rival BYD opted to invest in Hungary. Foreign-controlled enterprises, particularly those in the banking, finance, pharmaceutical, and technology industries, play an outsized role in the economies of several smaller European countries, with foreign companies being attracted to invest in countries such as Luxembourg and Ireland due to their more lenient investment, taxation, and corporate governance regimes.
Inflows, outflows, and FDI stocks
Both inward and outward flows of foreign direct investment in Europe continued the downturn trend that began in 2022, largely due to persistent rise in energy prices, the international conflicts and a tense geopolitical environment, as well as the increasing trade barriers. As investors were wary to invest in Europe at a time of geopolitical instability, and poor economic performance, inward flows of FDI fell to a nine-year low with a five percent decline on investments in projects in 2024 compared with 2023. The European countries with the largest inward stock of FDI are the United Kingdom and the Netherlands, with both of these countries having stocks worth over 2.7 trillion U.S. dollars each, while the Netherlands is also the leading country in terms of outward foreign direct investment, with almost 3.3 trillion U.S. dollars in outward FDI stock. The small Western European country of Luxembourg overshadows all other European countries when it comes to FDI stocks compared to the size of the national economy, with Luxembourg's outward stocks being worth almost 20 times its GDP.'Derisking' foreign investment and the new European Economic Security Strategy
In spite of its salience for the European economy, governments and institutions have become more wary of the effects of allowing lightly regulated foreign investment into their countries in recent years, particularly as this can pose national security issues. These concerns have arisen in light of growing tensions between the EU and geopolitical rivals such as Russia and China. Calls for the EU to 'derisk' - that is, to attempt to limit risks through regulation - its economic relationships with these powers led to the introduction of an FDI regulation in 2020 to address these challenges, with larger investments from outside of the EU undergoing screening procedures to ensure they do not negatively impact security and public order.Following this initial regulation, the Commission adopted new measures under the European Economic Security Strategy in June 2023 and January 2024 to tighten inbound investment screening rules. These measures aim to ensure compliance across the EU, require all member states to implement harmonized screening mechanisms, expand the scope of investments subject to review, and enhance coordination on export controls.
