FDI, trade interdependence, and functional integration: The role of EU membership and Asian investment

Alena Dorakh; Alena Dorakh

doi:10.3934/NAR.2026006

National Accounting Review

2026, Volume 8, Issue 1: 116-149. doi: 10.3934/NAR.2026006

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Research article

FDI, trade interdependence, and functional integration: The role of EU membership and Asian investment

Alena Dorakh ^,

Department of Business Administration, Economics, Sociology, Mathematics, Computer Science, Trier University, Germany

Received: 28 October 2025 Revised: 26 February 2026 Accepted: 13 March 2026 Published: 27 March 2026
JEL Codes: F13, F14, F15, C80

The study analyzed how foreign direct investment (FDI) and trade in Europe are evolving, shaped by the interaction between traditional factors, such as EU membership, and emerging drivers, including trade interdependence, export-platform strategies, and Asian investment patterns. A gravity-based empirical framework augmented with newly developed indicators was employed, comprising the Bilateral Trade Interdependence Index, the export-platform indicator, Belt and Road Initiative (BRI) participation, and measures of functional integration, covering over 95% of European countries and their global partners from 2010 to 2023. The findings show that trade dependency with non-EU partners experienced the fastest growth, rising by 55% between 2011 and 2023. The empirical results confirm that stronger bilateral trade interdependence significantly predicts higher FDI inflows. The BRI analysis and functional classification highlight a shift from early infrastructure-focused Chinese investment to a new wave of strategic-sector-oriented FDI in Europe. Since 2018, export-platform strategies have expanded from Europe's core economies to Central and Eastern Europe, creating emerging production hubs, and then shifted toward the Western Balkans and Turkey, possibly reflecting evolving EU regulations and supply chain realignments.
- export,
- tariffs,
- European Integration,
- gravity model,
- export-platform FDI,
- market-access FDI,
- tariff-jumping,
- production hubs,
- the Belt and Road Initiative,
- EV,
- semiconductors
Citation: Alena Dorakh. FDI, trade interdependence, and functional integration: The role of EU membership and Asian investment[J]. National Accounting Review, 2026, 8(1): 116-149. doi: 10.3934/NAR.2026006

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Abstract

The study analyzed how foreign direct investment (FDI) and trade in Europe are evolving, shaped by the interaction between traditional factors, such as EU membership, and emerging drivers, including trade interdependence, export-platform strategies, and Asian investment patterns. A gravity-based empirical framework augmented with newly developed indicators was employed, comprising the Bilateral Trade Interdependence Index, the export-platform indicator, Belt and Road Initiative (BRI) participation, and measures of functional integration, covering over 95% of European countries and their global partners from 2010 to 2023. The findings show that trade dependency with non-EU partners experienced the fastest growth, rising by 55% between 2011 and 2023. The empirical results confirm that stronger bilateral trade interdependence significantly predicts higher FDI inflows. The BRI analysis and functional classification highlight a shift from early infrastructure-focused Chinese investment to a new wave of strategic-sector-oriented FDI in Europe. Since 2018, export-platform strategies have expanded from Europe's core economies to Central and Eastern Europe, creating emerging production hubs, and then shifted toward the Western Balkans and Turkey, possibly reflecting evolving EU regulations and supply chain realignments.

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