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Über dieses Buch

This book examines how foreign direct investment (FDI) inflows to Central and Eastern Europe have changed after the Great Recession. It argues that beyond their cyclical effects, the economic crisis and the changing competitiveness of Central and Eastern European countries have had structural impacts on FDI in the region. FDI has traditionally been viewed as the key driver of national development, but the apparent structural shift means that focusing on cheap labour as a competitive advantage is no longer a viable strategy for the countries in the region. The authors argue that these countries need to move beyond the narrative of upgrading (attracting FDI inflows with increasingly higher value added), and focus on ensuring greater value capture instead. A potential way for doing this is by developing the conditions in which innovative national companies can emerge, thrive and eventually develop into lead firms of global value chains. The book provides readers with a highly informative account of the reasons why this shift is necessary, as well as diverse perspectives and extensive discussions on the dynamics and structural impacts of FDI in post-crisis Central and Eastern Europe.



1. Introduction: The Changing Patterns of FDI

This chapter provides an overview of the main argument in the volume. The message of the book is that beyond its cyclical effects, the Great Recession and the changing competitiveness of the Central and Eastern European countries have had structural impacts on foreign direct investment (FDI) to the region. FDI promotion policies, as well as wider national development policies, need to adapt to this new reality. The chapter also provides concise summaries of the specific arguments made in the individual chapters and discusses basic definitions.

Balázs Szent-Iványi

2. Post-crisis Crossroads for FDI in CEE

During the transition to market economy, inward foreign direct investment was a major source of growth and structural transformation in the 11 Central and Eastern European member states of the European Union. In these countries, the onset of the Great Recession coincided with the gradual exhaustion of competitiveness based on cheap semi-skilled labour. In the aftermath of the crisis, these countries have to find new ways of leveraging their skills base, if they wish to defend their place in the international division of labour. Difficulties in attracting FDI are reflected in the fact that the share of the CEE countries in world FDI flows and stocks has stopped increasing. The chapter analyses past features of FDI in the region in order to draw conclusions on potential future performance. It also analyses the policy responses of individual countries to the crisis and the new conditions of attracting FDI.

Kálmán Kalotay

3. Czech FDI Performance: Between Global Value Chains and Domestic Reforms

During the global recession, FDI inflows to the Czech Republic markedly slowed down, but soon returned to almost as high levels as before the crisis. The structure of these flows however has changed, as FDI projects are maturing and with major privatisation projects over, the relative importance of new equity investments has fallen. Reinvested earnings have replaced equity capital as the main component of FDI inflows. The service sector still accounts for more than 70% of inward FDI flows to the Czech Republic, with financial services being most important. Traditional EU countries still account for most FDI inflows, even though after the crisis less traditional investors started to target the Czech Republic, including the BRICS countries, where China and its 16+1 initiative plays the most significant role.

Tereza De Castro, Pavel Hnát

4. Foreign Direct Investment in Slovakia: The Tatra Tiger Gone Tame?

The aim of the chapter is to analyse the historical development and recent trends in FDI inflows to Slovakia. The paper identifies structural changes in FDI inflows to Slovakia that were triggered by the world economic crisis and discusses how these changes have affected the performance and competitiveness of the economy. It shows that foreign investors have re-focused their attention to sectors and industries with higher added value and higher capital intensity of production. The paper concludes with recommendations for Slovak policy-makers on how to adjust the investment environment to the new conditions and trends in the world economy.

Martin Grančay, Nóra Grančay

5. Latecomers May Be Admitted: Foreign Direct Investment Between the CEE Countries

Foreign direct investment among the Central and Eastern European countries has grown considerably recently, but it is still well below the level of what can be expected on the basis of the inherited economic and personal ties, levels of economic development and geographic proximity of these countries. After briefly describing data problems, the chapter shows the main characteristics of intra-CEE FDI, and its high concentration in terms of home and host countries, which is partly due to a few large investment projects, in certain cases related to privatisation. The validity of the investment development path model is shown, which indicates that further growth of intra-regional FDI may be expected.

Magdolna Sass

6. Upgrading and Value Capture in Global Value Chains in Hungary: More Complex than What the Smile Curve Suggests

This chapter presents a conceptual model to explain why the upgrading of MNCs’ manufacturing subsidiaries fails to translate into additional value capture for upgraded actors. The model, a dynamic version of Mudambi’s (J Econ Geogr 8(5): 699–725, 2008) smile curve, integrates the concept of value capture. It is shown that over time, the shape of the original smile curve transforms. The curve shifts downwards, which represents the shrinking margins of actors. This effect can be countered through upgrading. The bottom part of the curve becomes flatter: this represents the commoditisation of business functions undertaken by upgraded subsidiaries. The sides become steeper as a result of changes in the specialisation of actors at the sides of the curve. The smile is transformed into a “bathtub.”

Andrea Szalavetz

7. Inequalities of Accumulation: The Case of Central and Eastern Europe

The chapter examines the development of CEE countries within the context of the global accumulation of capital. After describing the global economy as the hierarchy of the core and peripheral-type economies, the chapter assesses the development of the global corporate network and the role CEE countries play within this. With the help of statistical data, the distribution of incomes between the regions and social classes of Europe is analysed. The rates of profit of foreign direct investments and the profit per wages ratio are higher in the CEE countries than in the core countries of the EU. The emerging conclusion is that the region lacks the ability to accumulate enough capital because of a quasi-monopoly of transnational capital which adds a continual drain upon a substantial part of the value added from the region.

Annamaria Artner

8. Multinational Banks: Protective Factors of Financial Stability in Central and Eastern Europe?

The chapter analyses the determinants of capital adequacy in the banking FDI of Central and Eastern European countries, relying on the Bankscope database. The main hypothesis is that multinational ownership softened the impact of the crisis in commercial banks, as the parent banks capitalised those affiliates which turned red in household and corporate crediting. This type of cross-market rebalancing is tested by a regression analysis, and the “too-big-to-fail” nature of the parent bank is the main significant determinant in all specifications, supporting the hypothesis.

Gábor Kutasi

9. Investment Promotion in the Visegrad Countries: A Comparative Analysis

The chapter examines whether the investment promotion agencies (IPAs) of the V4 countries follow a similar approach when trying to attract FDI into their economies. After a brief overview of the relevant literature on the factors influencing the IPAs’ performance, a comparative analysis is provided about the V4 countries’ IPAs, focusing on the existing differences from an effectiveness point of view. The chapter shows that the countries established complex systems to meet the new regulations of the European Union on financial aid for the period 2014–2020, with momentous differences in financial incentive patterns. The design of investment promotion tools of the V4 countries seems to be similar in many aspects; however, several differences can be identified. Analysing the characteristics of the four IPAs, it can be stated that the Czech Republic comes closest to meeting the international best practices among the four countries.

Ágnes Tőrös, Ádám Mészáros, Ákos Dani

10. Competitiveness and Investment Promotion in Bulgaria and Romania

After the onset of the 2007 financial crisis, Bulgaria and Romania employed a large set of fiscal and investment incentives in order to attract FDI flows. The chapter provides a comparative analysis of the investment promotion strategies of the two countries. The Bulgarian investment promotion agency provides services to foreign investors through every step of the investment process and has a well-organized website, which provides comprehensive information. In the case of Romania, however, a clear strategy to attract FDI to specific sectors of the economy is missing. The analysis highlights that Romania failed to make the relevant business information easily available to potential investors, as so many changes in the promotion agency affected its ability to provide quality information.

Sorin Gabriel Anton

11. Conclusions: Prospects for FDI-Led Development in a Post-crisis World

This chapter explores the possibilities CEE countries have for convergence with the development paths of the Western countries in a post-crisis setting. It argues that the current way in which the CEE countries have integrated into the global value chains of multinational corporations seems unlikely to provide strong further momentum for such convergence. Processes of “upgrading,” which many have perceived as the solution to longer term national development driven by FDI, are unlikely to meaningfully support convergence as these processes go hand-in-hand with decreasing shares of value capture by local affiliates. The CEE countries are stuck in a “low value capture trap” and require policies which foster the emergence of innovative, CEE-based global value chains in order to exit this trap.

Balázs Szent-Iványi


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