From Market Access to Productive Investment EU Economic Integration, Investment Facilitation and Commercial Justice in Selected Developing Economies

Abstract

This article analyzes the reasons for the varied patterns of foreign direct investment (FDI) in Pakistan, Bangladesh, Vietnam, India and Morocco between 2015 and 2025 with an integration process into European Union (EU) market. It combines three aspects that are usually treated separately: the productive conditions that make investment commercially viable, regulatory and administrative conditions under which investment can be established and operated, and institutions under which contractual risk is managed. The article adopts comparative institutional and policy analysis with descriptive quantitative evidence, which is based on Dunning's Location Advantages Framework (DTAD), North's Institutional Analysis (NIA) and Williamson's Transaction Cost Economics (TCE). It has been suggested that EU market access can provide a complement to a location proposition and can lead to productive investment; it is not a prerequisite for productive investment, nor a condition of sustained productive investment. Productive capabilities influence the value of market access, infrastructure and connectivity and production networks influence the nature of the market access, facilitation and uncertainty influence the administrative costs and commercial justice governs the nature of the contractual risk. The evidence is consistent with a configurational interpretation, rather than an independent-effects causal estimate. It makes implications for the EU Global Gateway, in terms of the alignment of infrastructure and financial de-risking with productive capabilities and investment facilitation and commercial risk governance. Foreign investors may be drawn to a developing economy because of preferential access to a major external market, without this market access leading to a sustained stream of productive investment. This article explores the rationale behind the divergent investment paths taken in Pakistan, Bangladesh, Vietnam, India, and Morocco during the period 2015-2025. It combines three aspects that are typically considered separately: i) productive capabilities and connectivity; ii) administrative and regulatory framework for the setting up and management of investment; iii) institutions to manage contractual and commercial risks. The article adopts, first, the location based eclectic paradigm of Dunning, and, second, institutional analysis of North and Williamson's transaction cost perspective to delineate mechanisms, to provide a theoretically configurational explanation. The comparison shows that a location proposition can be improved by the EU market access, but it is not a precondition or a sufficient condition for the foreign direct investment (FDI) to generate productive effects. Its value lies in the ability of firms to use this access efficiently via their competitive productive capabilities, infrastructure, skills, supplier network, and integration into the production system. Another, though smaller, risk category is contractual risk under the influence of investment facilitation and the predictability of the regulatory environment; courts, mediation, arbitration and enforcement mechanisms play a role in that area. The evidence, therefore, substantiates a functional rather than one factor explanation of investment integration. The article highlights the implications for the EU's Global Gateway concerning infrastructure and financial de-risking, which is likely to lead to productive investment only when complemented by sector specific facilitation, productive-capability development and credible commercial risk governance.