Eastern Journal of European Studies

The investment development path in a globalised world: implications for Eastern Europe

Authors: Rajneesh NARULA, Jose GUIMON  

Abstract: This article summarises recent revisions to the investment development path (IDP) as postulated by Narula and Dunning (2010). The IDP provides a framework to understand the dynamic interaction between foreign direct investment (FDI) and economic development. The revisions take into account some recent changes in the global economic environment. This paper argues that studies based on the IDP should adopt a broader perspective, encompassing the idiosyncratic economic structure of countries as well as the heterogeneous nature of FDI. It is critical to understand the complex forces and interactions that determine the turning points in a country's IDP, and to more explicitly acknowledge the role of historical, social and political circumstances in hindering or promoting FDI. We discuss some of the implications for Eastern European countries and provide some guidelines for future research.

Keywords: FDI, investment development path, Eastern Europe, multinational enterprises, transition

Pages: 5-19 | Full text (PDF)

Foreign direct investment of Central and Eastern European countries, and the investment development path revisited

Authors: Marian GORYNIA, Jan NOWAK, Radosław WOLNIAK

Abstract: 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 Stage2 or are approaching Stage 3. With some notable exceptions, the study points to conformity of the analyzed IDP trajectories with Dunning's model.

Keywords: FDI, Central and Eastern European countries, investment development path

Pages: 21-36 | Full text (PDF)

Attracting foreign direct investment: the public policy scope for South East European countries

Authors: Christian BELLAK, Markus LEIBRECHT, Mario LIEBENSTEINER 

Abstract: Based on earlier empirical literature for Central and Eastern European Countries this paper attempts to analyze the likely impact of changes in corporate income taxes, in the endowment with production-related material infrastructure and in the institutional environment on Foreign Direct Investment (FDI) - and thus on one channel of regional development in South Eastern European Countries (SEECs). Specifically, we explore the scope for public policy to attract FDI separated by these three policy areas and across the SEECs. Our findings suggest that the potential for SEECs to attract FDI upon changes in these policy areas varies not only substantially between the three policy areas but also within the group of SEECs. Yet, as a general picture, most SEECs have substantial scope to attract FDI by improving their institutional environment as well as their infrastructure endowment. The tax instrument, in contrast, is largely exhausted as a means to attract FDI. Based on these findings some medium- and long-term policy issues are outlined.

Keywords: foreign direct investment, taxes, infrastructure, institutions, South Eastern European countries

Pages: 37-53 | Full text (PDF)

Patterns of inward FDI in economies in transition

Author: Kalman KALOTAY

Abstract: This article analyses the contribution of foreign direct investment to structural change in various groups of economies in transition: new European Union member countries (including Bulgaria and Romania), South-East Europe (excluding Bulgaria and Romania), and the Commonwealth of Independent States. It comes to the conclusion that foreign direct investment has had the deepest impact on structural change in new EU members, and the smallest (in fact negative) impact in the Russian Federation. This is related to differences in timing of investment flows (they started earlier in new EU members; other subregions caught up later on), as well as the sectoral composition of FDI. It also has to be noted that the FDI of new EU member countries, especially in automotive production and electronics proved to be more vulnerable to the crisis of 2008-2009 than FDI in other transition economies. It remains to be seen if these countries in turn will be able to benefit fast from the post-crisis recovery.

Keywords: FDI, transition, structural change, crisis

Pages: 55-76 | Full text (PDF)

Inward FDI in seven transitional countries of South-Eastern Europe: a quest of institution-based attractiveness

Authors: Nathalie FABRY, Sylvain ZEGHNI

Abstract: The main question we address is whether the weak FDI level in the SEE-7 is linked to ill-adapted institutions or not. In order to answer it, we need to understand the role of institutions in shaping a strong localization advantage for FDI. We develop a theoretical framework to understand the relationship between Transition, Institutions and inward FDI. We assume that the ability to attract FDI depends on the local institutional arrangement. We present our pattern of institutional arrangement that may help us understand why, in spite of identical institutions, countries attract a different level of FDI. We split the SEE into two categories of host countries, each category being characterized by a specific institutional arrangement and level of FDI. We conclude with the relevance of our proposition to develop an analytical framework where FDI is the outcome of a new and well-adapted institutional arrangement.

Keywords: FDI, transition, institutions, attractiveness, South-Eastern Europe, institutional arrangement

Pages: 77-91 | Full text (PDF)

Evidence on the determinants of foreign direct investment: the case of EU regions

Authors: Laura CASI and Laura RESMINI   

Abstract: This study analyses the determinants of Foreign Direct Investment (FDI) at regional level. While the determinants of FDI in Europe have been extensively analysed at the country level, the literature on location patterns and on the determinants of FDI at the regional level is only at its beginning. This study follows this line of empirical research by using original data on the number of foreign investments over the 2005-07 period disaggregated by regions of the EU27 and by sectors. We perform a detailed analysis of the location determinants of foreign investments using different econometric specifications in order to consider a large set of variables potentially explaining FDI location. We attempt, on the one hand, to demonstrate whether variables usually employed to explain the determinants of FDI at the country level also influence the location of FDI at the regional level, and on the other hand to identify which locational advantages are able to attract FDI into EU regions. In so doing, we control for firm, sector and spatial heterogeneity in order to capture potential differences in the patterns of location of different kinds of foreign firms.

Keywords: foreign direct investment, region

Pages: 93-118 | Full text (PDF)

The role of multinational enterprises for regional development in Bulgaria

Author: Kaloyan KOLEV

Abstract: This paper offers a comprehensive and balanced assessment of the spatial distribution and significance of MNEs activities for the development of regions in Bulgaria. Comprehensive official data and large business samples of foreign affiliates show that the MNEs impact is controversial as benefits are unevenly distributed across regions. The paper states that MNEs activities are not only one of the most important vehicles of local development, but also a factor in extending regional disparities in production, income and living conditions. Possible explanations could be found in the motives and structure of attracted FDI, lagging national development, low absorption capacity of regions and inadequate government policy towards FDI.

Keywords: Bulgaria, foreign direct investment, multinational enterprise (MNE), regional development

Pages: 119-138 | Full text (PDF)

Does FDI promote regional development? Evidence from local and regional productivity spillovers in Greece

Author: Vassilis MONASTIRIOTIS, Jacob A. JORDAAN

Abstract: Studies on the productivity spillovers of FDI have concentrated on the nationalsectoral level. As a result, little is known about the impact of FDI on absolute and relative regional economic performance. In this paper we examine this issue by relying on a unique dataset of over 20,000 Greek firms for the period 2002-2006 covering all sectors of economic activity. We examine the spatial distribution of foreign-owned firms in the country and analyse the effect that their presence - at the local, regional and national levels - has on the productivity of domestic firms. We find strong evidence suggesting that foreignowned firms self-select into regions and sectors of high productivity. Net of this selection effect, the impact of foreign presence on domestic productivity is negative - although at the very local level some positive spillover effects are identifiable. The bulk of the effects concentrate in non-manufacturing activities, high-tech sectors, and medium-sized high-productivity firms. Importantly, this effect is not constant across space however. Productivity spillovers tend to be negative in the regions hosting the main urban areas in the country but positive in smaller and more peripheral regions. In this way, despite the tendency of FDI to concentrate in a limited number of areas within the country - those of the highest level of development - the externalities that FDI activity generates to the local economies appear to be of a rather equilibrating character.

Keywords: regional development, FDI, productivity spillovers, Greece, spatial heterogeneity

Pages: 139-164 | Full text (PDF)

International outsourcing over the business cycle: some intuition for Germany, the Czech Republic and Slovakia

Author: Sandrine LEVASSEUR

Abstract: In this paper, we assess the extent to which multinational firms - in the first instance, the German ones - may adjust their international outsourcing over the business cycle in the Czech Republic and Slovakia. For that purpose, we have used monthly data of production for the manufacturing sector as a whole and some of its sub-sectors, since 2000 onwards. Our econometrical estimates suggest that there would be an asymmetry in the international outsourcing across the states of the economy, meaning that multinationals firms would be engaged differently in outsourcing activities, depending on whether bad or good economic times occur. Yet, such an asymmetry is found increasing over the time for German and French multinationals operating in the transport equipment sector of Slovakia. Another conclusion is that international outsourcing made by multinational firms in Slovakia may account for a portion of its large business cycles volatility.

Keywords: international outsourcing, foreign direct investment, business cycles, Central and Eastern European countries, European integration

Pages: 165-185 | Full text (PDF)

Chinese investments in the EU

Authors: Haico EBBERS, Jianhong ZHANG

Abstract: China's investments in the European Union are much lower than what you may expect given the economic size of both entities. These relatively low investments in Europe are a combination of priority and obstacles. The priority for investments is clearly in Asia, Africa and Latin America. This regional pattern is heavily influenced by the need to solve the resource shortage in the medium and long term. The investments in Europe and the United States are mostly market seeking investments. Research specifically focused on Chinese M&A abroad comes to the same conclusion. The success rate of Chinese M&A abroad is much lower than what we see with respect to American or European investments abroad. In this paper, we examine why Chinese firms are facing more difficulties in the European Union than in other regions. The paper focuses on Chinese M&A as proxy for total foreign direct investments abroad. By looking at the factors that have been documented as influencing the level of M&A abroad, it becomes clear that Chinese firms in Europe are hindered by many factors. For example, the trade between China and the EU is relatively low, the institutional quality is lower compared to the United States, there is less experience with respect to Europe and relatively many deals relate to State Owned Enterprises (SOE) which makes the deal sensitive. So it is logical that Chinese investments are not very high in Europe. However, the research makes clear that the obstacles for Chinese investments in Europe are disappearing step by step. In that sense, we expect a strong increase of Chinese investments in Europe in the future.

Keywords: FDI, mergers & aquisitions, China, EU

Pages: 187-206 | Full text (PDF)

BOOK REVIEW:

Alfonso Martinez Arranz, Doyle Natalie J., Winand, Pascaline (eds.), New Europe, New World? The European Union, Europe and the Challenges of the 21st Century, P.I.E. Peter Lang, Brussels, 2010

Author: Adrian IVAN

Pages: 207-210 | Full text (PDF)