Service trade restrictiveness and foreign direct investment—Evidence from greenfield <scp>FDI</scp> in business services

Abstract We study the impact of service trade restrictions on bilateral greenfield FDI projects in four business services sectors within a gravity model framework. Project level data for 43 destination countries and up to 41 source spanning years 2014–2020 stems from fDi Markets database OECD's Service Trade Restrictiveness Index (STRI). Using negative binomial estimator explain number projects, we find that represent significant barrier FDI. In three out services, obtain statistically evidence effect compound STRI level. sub‐components index (restrictions foreign entry, movement people, other restrictions) generally improves explanatory power models. To illustrate potential magnitudes, simulate how expected would increase response hypothetical policy reform reducing relevant by 50%. average increases across ranging between 20% 104%, with strong dependence which sector is considered whether or not only involve European Economic Area (EEA).