Common Correlated Effects Estimation of the Relationship between Foreign Direct Investment and Welfare: A Case Study of Tax Havens in Europe
Year: 2026
Type: article
Abstract: This study examines the relationship between FDI, corporate tax revenue, and welfare in six selected European tax havens: Belgium, Ireland, Luxembourg, Malta, the Netherlands, and Switzerland, using annual data from 1995-2023. Employing second-generation econometric methods (Fourier KPSS, ECM bootstrap cointegration, and CCEMG), the analysis finds that FDI in tax-haven economies is largely financialised and disconnected from real economic activity. Short-run results show no welfare gains from FDI or tax revenue. Long-run findings reveal strong heterogeneity: corporate tax revenue significantly improves welfare in Ireland and Switzerland, while FDI has weak or negative effects in Malta, Luxembourg, and the Netherlands, consistent with their role as financial hubs.
Source: Sosyoekonomi
Authors: Özge Önkan, Yağmur Sağlam
Institution: Sinop University
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W7223909090