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<p>This paper provides new empirical evidence on the impact of artificial intelligence (AI) on foreign direct investment (FDI) inflows in the European Union (EU), a region at the forefront of digital and regulatory transformation. While traditional determinants of FDI, such as market size, trade openness, human capital, and digital infrastructure, are well documented, the macro-level role of AI remains largely unexplored. Using a dynamic panel of 26 EU countries from 2000 to 2021 and a GMM estimator to address endogeneity and the persistence of FDI flows, the study finds that GDP per capita, digitalization, and trade openness are positively associated with FDI inflows, highlighting the importance of economic development, technological readiness, and openness to global markets. In contrast, AI, proxied by AI-related patent counts, is associated with lower FDI inflows, suggesting that advanced technological capability alone does not enhance investment attractiveness without complementary skills, absorptive capacity, and supportive institutions. Human capital, surprisingly, also displays a negative association with FDI, which may reflect higher labor costs or mismatches between workforce skills and investor needs. Granger causality tests indicate that AI stimulates digitalization, refining the GMM result by showing that AI’s influence operates not through FDI attraction but through its role in transformation and innovation. This brings to light the need for AI to operate within a broader ecosystem of digital infrastructure, adaptable labor markets, and coherent policy support. To translate AI capacity into investment gains, policymakers should pursue integrated strategies that align technological progress with workforce readiness and targeted sectoral incentives.</p>

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Does artificial intelligence (AI) enhance FDI inflows? dynamic panel GMM evidence from 26 EU countries

  • 期刊论文

  • 发表日期：

    2025年12月26日

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  • Ben Soltane Bassem

摘要

This paper provides new empirical evidence on the impact of artificial intelligence (AI) on foreign direct investment (FDI) inflows in the European Union (EU), a region at the forefront of digital and regulatory transformation. While traditional determinants of FDI, such as market size, trade openness, human capital, and digital infrastructure, are well documented, the macro-level role of AI remains largely unexplored. Using a dynamic panel of 26 EU countries from 2000 to 2021 and a GMM estimator to address endogeneity and the persistence of FDI flows, the study finds that GDP per capita, digitalization, and trade openness are positively associated with FDI inflows, highlighting the importance of economic development, technological readiness, and openness to global markets. In contrast, AI, proxied by AI-related patent counts, is associated with lower FDI inflows, suggesting that advanced technological capability alone does not enhance investment attractiveness without complementary skills, absorptive capacity, and supportive institutions. Human capital, surprisingly, also displays a negative association with FDI, which may reflect higher labor costs or mismatches between workforce skills and investor needs. Granger causality tests indicate that AI stimulates digitalization, refining the GMM result by showing that AI’s influence operates not through FDI attraction but through its role in transformation and innovation. This brings to light the need for AI to operate within a broader ecosystem of digital infrastructure, adaptable labor markets, and coherent policy support. To translate AI capacity into investment gains, policymakers should pursue integrated strategies that align technological progress with workforce readiness and targeted sectoral incentives.