Europe remains one of the world’s largest recipients of foreign direct investment. By the end of 2024, the total stock of FDI in the EU reached around USD 12.4 trillion. That is close to one third of all FDI in OECD countries and roughly a quarter of the global total.
But behind these impressive figures lies a less comfortable reality. Investment is distributed very unevenly. And over time, this imbalance is not fading. It is becoming entrenched. This is one of the key structural problems of the European economy, widening gaps between regions and creating a new form of economic divide.
The main trend of recent years is clear. Foreign direct investment has become increasingly volatile. After the peak in 2015, when FDI inflows to the EU exceeded USD 1 trillion, Europe went through sharp downturns. The pandemic, the war in Ukraine, the energy crisis, rising protectionism, and growing investor caution pushed inflows close to zero in 2022.
Recovery began in 2023 and 2024, but levels have not returned to the past highs. At the same time, the geography of capital has barely changed. Money still goes to the same places it did twenty years ago.
Looking at regions rather than countries makes the picture even starker. Regional differences in FDI across the EU are more than three times larger than differences in GDP per capita. In 2022, the Gini coefficient for FDI per capita reached 0.65. For GDP per capita, it was around 0.19.
This means investment is far more unevenly distributed than income. And while incomes in some countries slowly converge, the investment gap persists.
Over the past two decades, a stable group of winning regions has emerged. These are capital cities and large metropolitan areas, financial and corporate hubs, and major logistics nodes. They include Eastern and Central Ireland, Ile-de-France, and selected regions in the Netherlands and Spain. These areas have attracted tens of billions of dollars in greenfield investment.
At the same time, many EU regions have received symbolic amounts only, sometimes less than USD 1 billion. For a regional economy, that is almost statistical noise.
The most important divide is not between countries, but within them. Around two thirds of all regional FDI disparities in Europe are generated inside national borders. This means the issue is not simply a rich North versus a poor South, or West versus East.
Even in advanced economies like Germany, France, Italy, and Spain, investment is concentrated in a few growth poles, while the periphery remains in the shadows.
This concentration is highly persistent. Since 2003, about 85 percent of EU regions have stayed in the same investment category. Regions in the top decile of FDI inflows largely remained there. Those in the bottom decile mostly stayed at the bottom. Even periods of rapid growth or deep crisis barely changed this structure.
Europe’s investment map looks surprisingly stable, despite repeated external shocks.
Capital behavior follows a simple logic. Multinational firms aim to reduce risk. In times of uncertainty, they cut activity and focus on familiar locations. During recoveries, expansion is selective.
This strengthens the winner-takes-more effect. Strong regions become even stronger, while weaker ones continue to lag behind.
The sectoral structure of FDI is also changing. In recent years, digital industries have taken the lead, accounting for more than one third of greenfield investment. Clean energy has nearly doubled its share and is approaching 20 percent. Traditional manufacturing is losing ground, though it has not disappeared.
These shifts create new opportunities, but only for regions that are ready. Digital and green projects require strong infrastructure, skilled labor, and an innovative environment. Where these conditions are missing, capital does not stay.
Another key point is that large FDI volumes do not automatically benefit the local economy. In some regions, foreign projects remain isolated enclaves. They create jobs and pay taxes, but have limited interaction with local firms.
In other regions, investments are deeply embedded, building supply chains and transferring technology. The difference is not the size of investment, but the quality of the local environment.
OECD research shows that a stable foreign presence is closely linked to three factors. Workforce skills, innovation systems, and transport connectivity. Each matters on its own, but the strongest impact comes when all three are present together. Regions that combine these elements attract higher value-added projects and retain investors for longer.
This is where the main fracture line appears. In some parts of Europe, ecosystems exist where foreign firms find suppliers, partners, and talent. In others, this does not happen.
Small and medium-sized enterprises, which make up 99 percent of all EU firms, remain weakly integrated into global value chains. Their density, productivity, and technological profile differ sharply across regions. In the most advanced ecosystems, around one fifth of firms operate in medium- and high-technology sectors. In weaker regions, the share is much lower.
Sectoral shifts reinforce this pattern. Digital and green projects tend to choose regions where related activity already exists. This creates a self-reinforcing loop. Capital goes where the base is already strong. Where it is not, the investment gap keeps growing.
Even traditional industrial corridors, while losing share in total FDI, continue to attract significant capital.
Regional FDI disparities are also more volatile than income gaps. During crises, investment differences widen sharply. During recoveries, they narrow only partially. This means FDI acts less as a stabilizer and more as an amplifier of regional cycles.
At the country level, patterns are also uneven. In Germany, France, Italy, Spain, and several other countries, regional investment gaps in recent years have exceeded long-term averages. In some countries, disparities appear smaller, but often this reflects low overall investment levels, not balanced development.
The resilience of investment geography deserves attention.Even recent shocks have barely reshuffled positions. A small number of regions improved slightly, but there was no large-scale reallocation of capital.
This underlines that the issue is not temporary, but a structural feature of the European economy.
In practice, this raises the risk of territorial fragmentation. Regions with high investment adapt faster to the digital and green transition. They accumulate human capital, technology, and networks. Other areas risk being locked into a peripheral role, with limited access to new growth drivers.
This divide does not necessarily follow political borders or classic macroeconomic lines. It runs within countries, between capitals and the rest, between logistics hubs and remote regions. That is why standard national policy tools often fall short.
Recent experience shows that rebalancing the investment map requires less direct subsidies and more systematic work on regional fundamentals. Without skills, innovation infrastructure, and connectivity, capital will continue to cluster in a narrow set of locations. And even large inflows, without local integration, fail to deliver lasting benefits.
Europe now faces a clear choice. Either investment geography continues to deepen regional divides, or policy starts to take the spatial dimension of growth seriously. So far, the evidence points to the first scenario. That is why uneven FDI has become one of the key issues for understanding Europe’s economic future.
Alen Serik, expert of the portal EconomyKZ.org
