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Hub-and-spoke Europe - do rules of origin deprive central and eastern Europe of foreign direct investment? an assessment of outward investment from Italy


Rules of origin embodied in the Europe Agreements are alleged to favour the EU over the CEECs as a location for FDI. This so-called hub-and-spoke hypothesis argues that subsidiaries in an associated country are required, in exchange for free market access in the EU, to source intermediate inputs primarily from domestic sources or in the EU itself. By contrast, subsidiaries in the EU can source components from any associated country, thus achieving a more efficient trade structure. The project tests this hypothesis by analysing Italian outward investment in CEEC and elsewhere. It tries to refine the hypothesis by differentiating between investment motives, firm size, trade intensity and export direction of the subsidiary, and time horizon of the investment project. The results are expected to throw light on the absolute impact of rules-of-origin arrangements on the direction and volume of FDI flows, and their relative weight vis-a-vis other determinants of FDI.


Nomisma SpA
Strada Maggiore 44
40125 Bologna

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