An analysis of foreign direct investment inward flows to Malta since its EU accession

Abstract

This study sets out to analyse the main patterns of inward foreign direct investment (FDI) to Malta between 2004 and 2015 as well as assess the relationship between FDI (both in terms of inflows and stock) and production in terms of gross value added (GVA) for different sectors of the Maltese economy. Whilst there is a consensus in the literature about FDI having a positive effect on production and thereby economic growth on an aggregate level, when accounting for the impact of FDI on production on a sectoral level, the results obtained no longer remain unequivocal. The research study focuses on four main sectors in the economy and using both descriptive and statistical measures, attempts to investigate the impact of FDI in each sector on the GVA generated. When examining the association between FDI and sectoral production, it is evident that there is a positive association between inward FDI stock and GVA in the manufacturing sector and the financial and insurance sector respectively. On the other hand, a very weak, negative association is determined for professional, scientific and technical activities and surprisingly, a moderate, negative association is established for the information and communication sector. Moreover, findings show that professional, scientific and technical activities had the highest contribution to GVA whilst financial and insurance activities received the largest shares of FDI, both in terms of flows and stock values. Furthermore, when analyzing the geographical breakdown of FDI inflows to Malta, it is evident that the EU is the main origin of such flows, with other economies such as Switzerland, Turkey, the US and Asia also giving their contribution. This study has demonstrated the importance of sectors when analyzing the relationship between inward FDI and production.