Foreign Direct Investment in the European Periphery: the competitiveness of Portugal

This thesis analyses the evolution and characteristics of Portugal’s inward and outward foreign direct investment (FDI) in recent years and how they reflect changes in the
country’s competitiveness. Inward FDI was investigated using regression analysis and a postal questionnaire. For outward FDI, semi-structured interviews were conducted at
locally owned firms with productive capacity abroad. The investment development path (IDP) was the framework used to integrate the results obtained with the analysis of
national competitiveness. The thesis also suggests a novel functional relationship for the IDP in order to reconcile the empirical tests with the underlying theory.

Inward FDI flows into Portugal have declined sharply in recent years, which was shown to be incommensurate with Portugal’s size and level of development. The questionnaire
survey suggested that efficiency seeking investment was especially affected. This points to the geopolitical changes that have occurred in Europe as a major reason for Portugal’s lower attractiveness as a location for FDI. Bureaucracy and a shortage of skilled workers were other important obstacles to foreign investment. Both correspond to institutional failures: the failure to promote an efficient legal environment, and the failure to create
advanced assets that compensate for rising production costs as locational determinants of FDI.

Outward FDI was found to be more in line with Portugal’s level of development. It is growing fast but requires consolidation. Investment is concentrated in few locations, and cultural proximity (particularly language) plays a major role. I Iowever, more than exploiting existing ownership advantages, the firms surveyed were internationalising in order to build new ownership advantages. To reach an efficient size, which is not possible at home when the market is small, or to consolidate the relationship with important clients in
oligopsonistic industries were the dominant motivations for internationalisation amongst the firms surveyed.