Abstract

This study examines how trade openness and exchange rate volatility influence foreign direct investment (FDI) inflows in Italy and the European Union over the period 2006–2022. Using an Autoregressive Distributed Lag (ARDL) model, the analysis explores both long-term and short-term dynamics among FDI, trade openness and the EUR/USD exchange rate, capturing pre- and post-pandemic developments. The findings indicate that sustained trade liberalization and currency stability are key drivers of long-term FDI inflows, while short-term effects are limited, suggesting that temporary policy changes and market fluctuations have minimal impact on investment decisions. These results highlight the importance of stable macroeconomic conditions and open trade policies in enhancing investor confidence. The study provides relevant implications for policymakers and business stakeholders, emphasizing the role of consistent economic strategies in strengthening the attractiveness of Italy and the European Union for foreign investment.

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