This report analyses how inward foreign direct investment (FDI) influences domestic performance in productivity, innovation, and employment among small and medium-sized enterprises (SMEs) across the European Union. Drawing on subnational data and firm-level evidence from Germany, Italy, and Romania, it maps the geography of FDI, explores how recent shocks and the rise of digital and green industries are reshaping investment patterns, and examines the regional conditions that attract FDI conducive to SME performance gains. The report investigates the concentration of FDI in well-connected hubs and considers how skills, innovation capacity, transport infrastructure, and SME ecosystems influence the extent to which FDI generates technology transfer, productivity growth, and employment changes. It concludes by outlining policy directions to broaden the regional reach of FDI and enable SMEs to capture greater value through skills upgrading, supplier development, and investment promotion strategies.
The report forms part of a multi-year joint project implemented by the OECD Directorate for Financial and Enterprise Affairs (DAF) and the OECD Centre for Entrepreneurship, SMEs, Regions and Cities (CFE), under the aegis of the OECD Investment Committee and the Committee on SMEs and Entrepreneurship in consultation with the Regional Development Policy Committee. Conducted with the support of the European Commission’s Directorate-General for Regional and Urban Policy (DG REGIO), the project aims to develop policy recommendations to help national and subnational governments strengthen FDI-SME linkages and enhance the potential for productivity and innovation spillovers to local economies.
Adam Elsheikhi (DAF), Economist, co-ordinated the preparation of the report under the supervision of Fares Al-Hussami, Head of the FDI Qualities and Impact Team, Sustainable Investment Unit, Investment Division (DAF). Chapters 1 and 2 were prepared by Adam Elsheikhi. Chapter 3 was prepared by Riccardo Crescenzi, Professor of Economic Geography, London School of Economics and Political Science (LSE), and Roberto Ganau, Associate Professor of Applied Economics, University of Padova. Stratos Kamenis (DAF), Economist and Project Manager, provided feedback throughout the project. Zofia Polakiewicz (CFE), Policy Analyst, contributed comments. Ana Novik, Head of the Investment Division, Martin Wermelinger, Head of the Sustainable Investment Unit and Deputy Head of the Investment Division (DAF), and Marco Bianchini (CFE), Economist and Project Co-ordinator, provided overall guidance. Lucinda Pearson and Adem Kocaman prepared the report for publication.