Automotive Industry Strategies by CEE Governments: Who Does What to Attract Business?

Abstract

Location decisions by automotive firms can play a major role in the economic development of whole regions and countries, both via direct stimuli (employment, education, innovation etc.) as well as pulling in further investments by suppliers and related industries. What strategies did governments in Central and Eastern Europe (CEE) apply to attract automotive industries to invest? How do government incentives fit the EU competition policy, and which worked? Based on location theory (Feinberg, 2007) and Porters' (1990) competitive advantage, we discuss measures taken by CEE governments. We conduct country case studies for Bulgaria, Hungary and Romania and analyze government incentive programs which were implemented for 5 recent large-scale investments by original equipment manufacturers. In comparing these public strategies, we conclude that tax related polices are among the most frequently used, while state grants and guarantees and the provision of infrastructure are also prevalent. Similar to shopping mall developers, governments try to attract “key investors” in the hope that upon this anchor, other investments will follow. This puts early movers in a formidable position.

Keywords: automotive industry, Eastern Europe, public support, car subsidies, competitiveness

JEL Classification: L62; L14; L21