Foreign Direct Investment and Enterprise Restructuring in Central Europe

Foreign direct investment is at the forefront of economic policy decisions in Central Europe, as it is expected to accelerate enterprise restructuring and aid in the successful transition to a market economy. This paper contains a panel data study of the effects of FDI in 11 different manufacturing sectors within three Central European economies: Hungary, Poland and the Czech Republic. We find evidence that FDI has increased labour productivity levels in most manufacturing sectors. We are able to differentiate between sectors with a high elasticity of substitution between labour and capital and those that are inelastic. We have also presented evidence to support the theory that the impact on labour productivity is predominantly due to the intangible assets introduced by foreign firms, rather than simply the fixed capital investment associated with FDI.     

The Rise and Fall of Foreign Direct Investment in Laos, 1988‐2000

Foreign direct investment (FDI) has played an important role in the development of Laos since the country embarked on an economic transition and business liberalisation programme in the late 1980s. However, in recent years Laos has witnessed a marked contraction in its cumulative FDI inflows. This article provides a profile of FDI activity in Laos over the past decade and identifies the various factors behind the rise, and subsequent decline, in foreign investment inflows during the 1990s. The article concludes by suggesting some of the ways in which Lao policy makers might seek to revive the country's flagging FDI sector.     

Technology sourcing versus technology exploitation: an analysis of US foreign direct investment flows

The traditional paradigm of foreign direct investment (FDI) suggests that FDI is undertaken principally to exploit some firm-specific advantage in a foreign country which provides a locational advantage to the investor. However, recent theoretical work suggests a model of FDI in which the motivation is not to exploit existing technological advantages in a foreign country, but to access such technology and transfer it from the host economy to the investing multinational corporation via spillover effects. This paper tests the technology sourcing versus technology exploiting hypotheses for a panel of sectoral FDI flows between the United States and major OECD nations over a 15 year period. The research makes use of Patel and Vega’s (Research Policy, 28, 145–55, 1999) taxonomy of sectors which are likely a priori to exhibit technology sourcing and exploiting behaviour respectively. While there is evidence that FDI flows into the United States are attracted to R&D intensive sectors, very little support is found for the technology sourcing hypothesis either for inward or outward FDI flows. The results suggest that, in aggregate, firm-specific ‘ownership’ effects remain powerful determinants of FDI flows.     

Restructuring China's Petrochemical Enterprises: A Case Study of the Fushun Petrochemical Company

This article presents a case study of Fushun Petrochemical Company (FPC), which is a large state-owned enterprise (SOE) in Liaoning province under the control of China National Petroleum Corporation. In the first part of the article we argue that China's approach to the reform of large-scale SOEs in upstream industries such as petroleum has a sound economic logic. In the second part we use the recent restructuring of FPC to illustrate China's approach to reforming the petrochemical sector. We draw on interviews with managers and local government officials to discuss both the difficulties that the enterprise faced prior to reform and the main measures that were implemented during restructuring to address these problems. While the restructuring process at FPC has just been completed, we argue that the outcome provides some support for China's decision to promote large SOEs in upstream industries.     

Assessing Macroeconomic Vulnerability in Central Europe

The Central European transition-accession countries Have experienced several periods of macroeconomic vulnerability since the end of output declines in the early 1990s. Some notable periods, which resulted in a necessity to implement extensive stabilisation measures, are March 1995 in Hungary, May 1997 in the Czech Republic and September 1998 in the Slovak Republic. This article shows that the standard early warning indicators provided useful information on macroeconomic vulnerability prior to the crises in Central Europe, although this information had been mainly indicative; that is, early warning indicators would not have allowed one to predict the crises and their timing. However, the growing gap between current account deficit and foreign direct investment (FDI) in all the countries analysed did provide clear early warning of subsequent economic turbulence.     

Globalization and Country‐Specific Service Links

Abstract

The Jones–Kierzkowski model of global fragmentation of production draws attention to the efficiency of ‘service links’ connecting ‘production blocks’ in different countries. Country‐specific service links include transport and telecommunications infrastructure and the overall business climate. Mobile factors of production, most prominently foreign direct investment (FDI), can shop around for countries with the most functional and inexpensive service links along with low labor costs. Those countries with favorable business climates and well‐functioning service links are able to attract FDI and other mobile inputs. We provide cross‐sectional evidence that successful exporters of manufactures, notably in East Asia, have relatively favorable service links.     

The Determinants of Foreign Direct Investment in the Business Services Industry

Abstract

This report aims to identify the determinant factors of FDI in the business services industry by examining 20 variables and their impacts on attracting foreign investment in 33 sample countries plus Hong Kong. The results of this study indicate that system-related factor conditions and demand conditions have a strong correlation to FDI. Among the variables under system-related factor conditions, four (bribery and corruption, transparency, intellectual property rights (IPR), and ease of doing business) greatly influence the amount of FDI in the business services industry. Among the variables under demand conditions, three (the cost of living index, office rent, and GDP) are key. At the same time, this paper concludes that the aforementioned factors influence not only the business services sector, but the manufacturing industry's FDI as well. Another main finding of this paper is that the FDI in the business services industry is more frequently found in more developed economies. For the market seeking and efficiency-seeking FDI, the quality of system-related factor conditions and the size of GDP are of particular importance for FDI in the business services industry.     

Characterising Japanese Direct Investment in Central and Eastern Europe: A Firm Level Investigation of Stylised Facts and Investment Characteristics

This article analyses the activities of Japanese investors in Central and Eastern Europe since the beginning of the region's transition. The use of firm level data on Japanese foreign direct investment (FDI) in the region allows us to focus on the industry, location and timing of affiliate establishment at a level of detail previously unexamined. This enables us to compare Japanese investment with overall regional inward investment as well as investigate country specialisation patterns within the region. We also characterise the type of investing parent, and determine how investments in CEE fit into the European-wide investment patterns for these firms. Finally, we investigate the entry mode choices of investing firms, finding a shift from minority-owned joint ventures and limited participation in the region in favour of wholly-owned subsidiaries and larger involvement in the region.     

The welfare effects of FDI: A quantitative analysis

Foreign direct investment (FDI) can increase productivity and wages. However, it is also often accompanied by primary income deficits as foreign-owned firms repatriate their profits. The welfare effects of FDI are thus ambiguous. A particularly illustrative example of this phenomenon are the Visegrád 4 (V4) countries (Czech Republic, Hungary, Poland, Slovakia). This paper investigates whether FDI can be beneficial in the presence of profit repatriation using a general equilibrium model calibrated to the V4 economies. Counterfactual simulations suggest that the benefits of FDI outweigh the costs for these countries. On average, a 1% increase in the share of foreign firms is associated with a 0.17% increase in welfare. However, incentivising foreign firms to reinvest more of their profits domestically is, ceteris paribus, welfare-improving. A 10-percentage-point increase in the profit repatriation rate is associated with a 1.06% welfare gain on average.     

Celtic Phoenix or Leprechaun Economics? The Politics of an FDI-led Growth Model in Europe

ABSTRACT

In this paper, we argue that Ireland’s post-crisis economic recovery in Europe was driven by foreign direct investment (FDI) from Silicon Valley, and while this growth model was made possible by Ireland’s low-corporate tax rates, it was also a result of these firms using Ireland to directly access the European labour market. We evidence this contention via sectoral and geographic analyses while simultaneously showing that Irish fiscal policies have not redistributed gains from the recovery to the broader population. As a result, the economic recovery has been most actively felt by those in the FDI sectors, including workers from the EU and beyond. Building on theories from the study of comparative capitalism, we suggest that this experience indicates that Ireland’s FDI-led growth model has created clear winners and losers, with significant distributional implications. The FDI growth regime been made possible by inward migration and European integration, but given the unequal distribution of the economic benefits that this generates, it is unlikely to be politically, or electorally, sustainable.     

Regional determinants of MNE’s location choice in post-transition economies

This article focuses on the impact of agglomeration and labour market factors on the location choice of MNEs in post-transition economies. We compare data from 33 regions in East Germany, the Czech Republic and Poland using a mixed logit model on a sample of 4,343 subsidiaries for the time period between 2000 and 2010. The results show that agglomeration advantages, such as sectoral specialization as well as a region’s economic and technological performance prove to be some of the most important pull factors for FDI in post-transition regions. With respect to access to labour, the results suggest that FDI in post-transition regions is (no longer) only dominated by efficiency seeking behaviour, but also by access to well-qualified labour.     

Foreign Direct Investment,Financial Development and Their Impact on the GDP Growth in Low-income Countries

ABSTRACT

This essay empirically studies the effects and causal links between foreign direct investment (FDI), financial development (FD) and economic growth. The sample consists of the main economies of low-income countries and the study covers the period 1990–2015. The results of the estimate show that, under certain specific economic conditions, FDI affects positively the level of long-term economic growth; it thus makes it possible to improve the economic situation of these countries. Using Johansen’s cointegration technique, the results find that FD; FDI and GDP growth are cointegrated, that shows the pursuit of the long-term equilibrium relationship between them. The error correction model confirms the existence of a double causal relationship between FDI and GDP growth, and between FD and FDI and between GDP growth and FD.     

FDI,Poverty, and the Politics of Potable Water Access

How does foreign direct investment (FDI) affect the wellbeing of the poor? We address this question by analyzing the impacts of FDI on access to potable water. We predict that higher levels of greenfield FDI in water‐intensive sectors slow the rate of access to potable water in developing countries, with these adverse effects conditional on subnational politics. We hypothesize that this is more likely to occur in polities marked by relatively large poor and marginalized populations, where regulatory capture is more likely to occur. To test our intuition, we analyze subnational data on greenfield FDI in India, confirming that multinational investment in “thirsty” manufacturing sectors are negatively associated with improvements in potable water access. We then present a controlled comparison case study of two Indian states, Kerala and Rajasthan, highlighting the political mechanisms conditioning FDI's effects on potable water.     

Post-privatisation Enterprise Restructuring

Post-privatisation restructuring of former state-owned enterprises (FSOEs) encompasses both shorter-run 'defensive' actions and longer-run 'strategic' measures. Restructuring involves changes in corporate governance, organisational structure, management, labour, capital, technology, output and sales. Various performance indicators may measure the results of restructuring, but care is required in the selection and interpretation of indicators. In the restructuring of FSOEs foreign strategic investors have many advantages over domestic investors. The study includes examples from experience in the Czech Republic, Hungary and Poland.     

European integration and the legacy of the post‐world war II German expulsions in East‐Central Europe

Efforts towards the formal integration of Poland and the Czech Republic into the European Union have opened the Pandora's box of issues concerning the expulsion of Germans and the confiscation of their property after the Second World War. This paper explains why Sudeten German expellees have been at the forefront of the drive for compensation and property restitution and why Czech‐German relations have been significantly more strained after 1989. As Poland and the Czech Republic prepare to join the EU, the potential for controversy over the involvement of European‐wide institutions in lingering disputes concerning the expulsions as well as over Germans acquiring property in areas formerly part of Germany is also a focus of concern.     

The First Wave of Mass Privatization in Bulgaria and its Immediate Aftermath

In January 1995, a Socialist government came to power in Bulgaria and initiated a mass privatization programme. In the first wave of this programme, which was completed in June 1997, about one-fourth of Bulgaria's state-owned enterprises were partially privatized through the programme. Patterned after the Czech mass privatization programme, an important outcome of the Bulgarian programme is that investment funds have become important agents in the private sector of the economy. It is too early to determine whether enterprise restructuring will now occur, but initial market signals suggest that Bulgaria may soon suffer from many problems that now confront the Czech economy unless new corporate laws supporting ownership rights and better capital market regulations are enacted.     

金融危机下中国钢铁企业整合路线分析

金融危机背景下中国钢铁企业产权混乱、高耗能低效益的弊端更加突出,来自政府、企业管理层、民营资本、外资、员工对钢铁企业整合重组的动力和阻力,成就了过去钢铁企业整合重组路线模式,成为分析现在钢铁企业整合重组的基础。研究表明,注重所有权与占有权的区别与联系,形成新的整合重组路线是解决中国钢铁企业重组的有益思路。     

Township and Village Enterprises,Openness and Regional Economic Growth in China

The authors argue that under the current political and economic conditions the restructuring of Russian enterprises on a mass scale is impossible, because the aims and methods of the restructuring programme often get in the way of the interests of different groups who in fact prosper on the inefficiency of private enterprise. These groups pay lip service to the restructuring process but do everything possible to slow down and block the process when their interests are threatened. The only group which is truly interested in restructuring of an enterprise is the middle managers. However, they are the least influential and least organised to affect enterprise restructuring. The article also addresses the legislation and especially the new law on bankruptcy, which potentially could speed up the restructuring process to a considerable extent. However, owing to the activities of some of the interest groups analysed, the law is failing to achieve its original aim. The occasional success stories have a very limited impact on Russian industries and in fact confirm the argument.     

The Emergence of Non-monetary Means of Payment in the Russian Economy

The widespread use of non-cash payments in Russia is the result of a complex bundle of factors: tax evasion, established networks of enterprises and policy-induced causes. By use of non-monetary payments, agents have relaxed their liquidity constraints, but they still lack the financial resources needed to undertake investment and restructuring. Banks' credit provision is based on criteria other than the profitability of the recipient of the funds. The interest rate, coupled with the restructuring of the banking sector, could operate as an effective lever that may lead to a more economically consistent management of liquidity and could also reduce capital flight.     

The Impact of Foreign Direct Investment on Poland's Trade with the European Union

Over 75% of FDI in Poland originates from the EU. The EU also predominates in the exports and imports of FDI companies. The objective of this article is to examine whether FDI is likely to replace trade or to create new trade flows. In particular, the article shows the influence of FDI on Poland's trade with the EU. The FDI impact on Polish trade can be seen as its contribution to export creation. Moreover, externalities caused by trade and FDI inflow are influencing Polish specialisation patterns, which is important in the process of integrating the economy into the world market.