chapter  5
Factor movements: FDI
ByBent E. Sørensen, Carolina Villegas-Sanchez
Pages 12

Financial markets are becoming increasingly more integrated as part of globalization and it is an explicit goal of the European Union (EU) to encourage this. For example, the Financial Services Action Plan (FSAP) is intended to help integrate financial markets in the EU. It was initiated by the EU Council in 1998 and focuses on the removal of regulatory and legislative barriers as well as harmonization of EU laws and regulations across countries. The FSAP includes 27 EU Directives and two EU Regulations as well as technical recommendations. It includes legislation on securities markets, corporate governance, banking, and insurance of varying degrees of importance for Foreign Direct Investment (FDI) – the focus of the present chapter. More recently, Jean-Claude Juncker, on taking over the presidency of the European Commission in the summer of 2014, embraced the idea of creating an EU capital markets union. While the details are still work in progress, the stated goal is to streamline EU institutions and regulations to increase non-bank capital flows to small firms, which at present are almost fully dependent on banks. Encouraging larger flows from non-local sources of capital, i.e. FDI, is likely to be a particularly important focus.