Foreign Direct Investment: The Case of Eastern Europe

Intereconomics, 1993

Foreign Direct Investment in Central and Eastern Europe An Assessment of the Current Situation Foreign direct investment is an important catalyst for the economic changes in transition economies offering host countries external resources, technology, management, and access to foreign markets. It is therefore high on the public policy agenda in the transition economies of Central and Eastern Europe and the newly independent states of the former Soviet Union and figures prominently among assistance activities at the bilateral and multilateral level. This article analyses the legal and institutional framework and the economic performance of foreign direct investment in fourteen European economies in transition at the beginning of 1993. I n the course of the past three years, reform legislation has been enacted at a prodigious rate throughout Central and Eastern Europe and most countries have done their best to make things easier for foreign investors? Controversy about unwelcome foreign takeovers has been usually confined to parliamentary and press debates and has had no decisive influence on government policies. All the countries surveyed 2 rightly consider foreign investment as basic to engage their economy in a process of fundamental changes to a market economy. Legal Framework for FDI Three groups of countries can be distinguished, In the Czech and SIovak Republics and Hungary, provisions regulating FDI were subsumed into the corporate and other commercial laws for domestic investors and business. They now offer a sophisticated legal system, although, as everywhere, there are faults and gaps. Countries such as Romania, Bulgaria, Estonia, Latvia, Lithuania and Russia offer a patchwork of laws, some modern and rather sophisticated, others rather peculiar. Poland is at an intermediate stage between the above countries and the others, while in Beiarus, Ukraine, Kazakhstan and Albania only the basic legal essentials for business and foreign investment are in place. While all countries allow the formation of joint ventures and fully foreign-owned companies, government approval, 9 OECD, Paris, France. This article is based on a forthcoming OECD publication on FDI in Central and Eastern Europe.

1996

First, the statistical evidence on FDI in the Central and Eastern European countries is shown. The volume of investment, the trends of capital inflow according to countries of destination and origin, and the distribution among industries are discussed. The main observations are the following : the volume of investment remained below the expected amount, Hungary attracted almost half of the investment over the whole period, whereas the Czech Republic got only the early investment. The foreign capital inflow seems to be diverted in time from the (North)-West part earlier towards the SouthEastern part of the region more recently. As far as the pattern of countries of origin is concerned, Germany is leading, followed by the US and Austria. The Far East is almost absent. As far as the industry pattern is concerned it is a far cry from the typical picture of industries which are characterised by early and a large amount of FDI. Some descriptive analysis was done on a pioneer sample of the 400 major international investors in the Visegrad-3 countries (the Czech Republic, Hungary and Poland). Investor country, industry and company determinants of foreign direct investment are dealt with. There seems to be an advantage of being near to the market, in particular for German and Austrian small to medium-sized companies. There is some interesting evidence about the role of intangible assets such as advertising and R&D, as most of the investment projects seem to be characterised by a low use of these intangible assets, but this seems to be compensated by the major investment deals which take place in industries which loyally advertise and do research. The size effect is not clear, but the sample of investors was biased towards larger projects. This puts forward some further hypotheses to investigate on whether the presence in the East is explained by market or low cost considerations and seen in a long term rather than in a short term perspective. Finally, this paper provides an overview of the theories on foreign direct investment behaviour by multinational companies. The different strands of this literature originating in international business, industrial organisation, location theory and the theory of the firm models are briefly mentioned. The emphasis is on the more recent analytical models of strategic behaviour, and, given the idiosyncrasies of the situation in Central and Eastern Europe as countries of destination of the foreign capital inflow, four major game theoretic related ways of analysis are expounded upon and criticised in the way they are inadequate to analyse FDI in the CEECs. These frameworks are: entry deterrence, waiting under uncertainty and learning from it, strategic trade policy and delocalisation. From this a tentative integration is suggested. • This work is part of the Ph.D. thesis of the author, which is financially supported by the N.F.W.O. (Belgian National Fund of Scientific Research). We would above all like to thank R. Veugelers and J. Konings. Also the help by the other members of the author's transfer committee, R. De Bondt, S. Estrin, M. Jackson and L. Sleuwaegen through very helpful encouraging comments is gratefully acknowledged, as well as the suggestions on empirical sources by K. Meyer and on analytical modelling by S. Vannini. All errors and fallacies remain ours. Comments of any kind are very welcome. Conclusion 111.2.1 Entry deterrence 111.2.2 Waiting under uncertainty and learning from it 111.2.3 Strategic trade policy 111.2.4 Union-firm bargaining and delocalisation 111.2.5 Our research agenda: a tentative integrated model Annabel Sels, research report, February 1996 I See, in view of this, also the latest ACE-report on the topic, Rojec et al. (1995). 2The IMF balance of payments yearbook requires a benchmark of 10%, which is the rule in most OECD countries.

CES Working Papers, 2011

As an engine for economic development of CEE countries, FDI inflows have contributed to creating new jobs and access to modern technologies; have had positive effects on balance of payments and state budget revenues. The purpose of this article is to highlight the implications of international financial and economic crisis of 2007 on FDI in CEE countries. Also, we realized a comparative approach of the factors that influence investors' decisions in Czech Republic, Hungary, Poland, Romania, Slovakia and a SWOT analysis of FDI in Romania at the end of 2009. The second part of the article represents an econometric analysis using SPSS of FDI impact on GDP and unemployment rate on the example of Romanian economy during 1991-2009. The fundamental hypothesis of econometric analysis is the following: it is a direct link between FDI and GDP, respectively, an inverse link between FDI and unemployment rate.

2021

Foreign direct investment (FDI) has been debated by many specialists being considered in most cases a source of development for the receiving countries. From this perspective the study is a comparative analysis of FDI evolution in Eastern European countries and an analysis of FDI in Romania. The analysis was carried out over a period of five years and allowed us to obtain useful information regarding the FDI volume expressed in % of GDP, FDI structure and structure of activities in Romania considered attractive for FDI, respectively FDI distribution in the regions of Romania.

Structural Change and Economic Dynamics, 2017

Economia e politica industriale, 1998

This paper uses dynamic panel data methods to examine the determinants of Foreign Direct Investment (FDI) into Central and Eastern European Countries (CEECs). Our empirical model shows that the traditional determinants, such as market potential, low relative unit labor costs, a skilled workforce and relative endowments have significant and plausible effects. In addition, transition-specific factors such as the level and method of privatisation, and the country risk, play an important role in determining the flows of FDI into the CEECs and help explain the different attractiveness for FDI of the individual countries.

Revista Română de Statistică

2009

In this paper, after a general overview of the economic situation of the new EU countries of 2004, we start by studying the foreign direct investment (FDI) by economic sector in the three Baltic countries (Estonia, Latvia and Lithuania), the five Central countries (Czech Rep., Poland, Hungary, Slovakia and Slovenia), besides Cyprus and Malta. In second place, we will monitor the potential and performance FDI indices for acceding countries and for Spain, Portugal and Greece. Finally, we present some conclusions.

2010

The present study investigates long-term developments in inward and outward FDI of 10 Central and Eastern European (CEE) countries using Dunning’s investment development path (IDP) paradigm as a theoretical framework. Its main purpose is to determine how far the CEE countries have progressed along their IDPs since the beginning of transition. The results show that half of the analyzed countries have already reached Stage 3 of the IDP, while the other half are either firmly in Stage 2 or are approaching Stage 3. With some notable exceptions, the study points to conformity of the analyzed IDP trajectories with Dunning’s model.

International Business and Government Relations in the 21 st Century, 2005

The 1990s have been a period of extraordinary politics in Central and Eastern Europe (CEE). This chapter discusses how the transition from state to market has created bureaucratic barriers to entry, but also windows of opportunity for foreign direct investment (FDI). The high costs and high investment risks associated with FDI in CEE are a reflection the institutional development. Thus, inflows of FDI have been largest in those countries that made most progress in establishing a market-oriented institutional framework.