3.3.2. Foreign direct investment

Foreign direct investment (FDI) is made up of those transactions by means of which a direct investor acquires or increases their interest in a firm resident in another country (firm receiving the direct investment or, hereinafter, firm with direct investment) such that they may exert effective influence in the management of that firm. Indicators of inward and outward foreign direct investment are associated with such aspects as the attractiveness of a territory for doing business, accessing its knowledge and/or high-level innovation system, market, inputs, etc. In this context, we analyse indicators of inward and outward investment capital, distinguishing between stock level and flow within these.

In terms of stock of foreign direct investment, outward capital flows for the Basque Country are much higher than inward flows

In relation to FDI stock, from Graph 7 we can see that, as generally is the case in advanced economies, the Basque Country has much higher values in terms of outward FDI (capital of Basque investors abroad) than inward. However, this could also be interpreted as a sign of barriers of a different type (for example, the cooperative nature of most of its business fabric, which hinders its acquisition by foreign capital) or even – according to Dunning’s eclectic theory, which includes the conditions which must exist for that direct investment to take place – fewer location benefits in the Basque economy to attract this capital. Whatever it may be, the Basque Country appears to be in line with such advanced economies as Germany, Japan and Korea, characterised by a high degree of specialisation in manufacturing and a relatively small stock of foreign direct investment captured from abroad. The high values of outward stock are therefore a reflection of investments and rollouts by Basque firms abroad.

Graph 7.  Inward and outward FDI stock (% of GDP, 2018)
Graph 7. Inward and outward FDI stock (% of GDP, 2018)
Source: Ministry of Economy, Industry and Competitiveness, foreign investment bulletins. UNCTAD. DataInvex. Eustat (Basque Statistics Office). Compiled by authors.
NB: Beyond the graph there are several OECD countries with a stock of inward and outward capital above 100% (Belgium, Ireland, Luxembourg, Netherlands and Switzerland).

The Basque Country's inward and outward flows of foreign direct investment are, in general, above the European average

The analysis of the stock is supplemented by trends in FDI flows. From Table 7 it is clear that FDI began to flow into the Basque Country to a greater extent from 2013, surpassing the values for Spain and Germany almost every year, and the European average most years. By 2016 and 2017, inward flows had reached an absolute level higher than those prior to the crisis. As regards the trend in outward FDI flows, before the Basque economy received the second great pounding in the crisis in 2011, outward FDI flows were holding up better than in the other economies. However, between 2011 and 2015, outward FDI from the Basque Country stayed at very low levels, before recovering after 2015 and generally moving into a position above other territories.

Tabla 7.  Foreign direct investment (% of GDP)
Tabla 7. Stock de entrada y salida de IED (% del PIB, 2018)
Source: Ministry of Economy, Industry and Competitiveness, foreign investment bulletins. UNCTAD. DataInvex. Eustat (Basque Statistics Office). Compiled by authors.

The percentage of Basque firms with shareholdings abroad is greater than those which are affiliates

Other indicators of the internationalisation level of the local productive fabric relate to the shareholding interest held by local firms in foreign firms, and the interest of foreign-owned companies in local firms, information which obtained from the SABI database. In the first case, Table 8 shows that shareholdings in firms abroad held by both Basque firms and those from the rest of Spain have been increasing in recent years, and this figure is higher in the case of Basque firms of all sizes. Shareholdings in local firms held by foreign shareholders have also increased, but are lower in the Basque case than in Spain. This means that the percentage of Basque firms with shareholdings abroad is greater than those which are affiliates, with the opposite being true for Spanish firms of every size in 2017.

Tabla 8. Firms with foreign shareholders
Table 8. Firms with foreign shareholders. % of active firms with foreign shareholders
Source:  SABI-Informa. Compiled by authors.
  1. It should be borne in mind that some of the fluctuations in FDI flows originate in financial sector investments.