Post-Crisis Crossroads for FDI in CEE
In: Balázs Szent-Iványi (ed.), Foreign Direct Investment in Central and Eastern Europe: Post-crisis Perspectives, Palgrave Macmillan 2017, pp. 23-49
Posted: 12 Jan 2017
Date Written: January 16, 2017
This chapter examines the question if inward foreign direct investment (FDI) is still a major source of growth and structural transformation in the 11 Central and Eastern European (CEE) member countries of the European Union in the post-crisis era. In other words, does FDI still follow a double track, that is, a quantitative increase coupled with structural upgrading? Does FDI help these countries in avoiding the “middle income trap”? The chapter finds that with changes in the world economy, especially the onset of the Great Recession and its aftermath, the CEE countries need to explore new ways to defend or redefine their place in the international division of labour. The chapter uses quantitative evidence, focusing on the past evolution of FDI and FDI policies. Its theoretical underpinning is derived from the locational advantages leg of the eclectic paradigm, and in the case of recent policy changes in Hungary, from the postulates of obsolescing bargain. The chapter analyses past features in detail, as they provide the best available indicators for future performance. This is however not an exercise in extrapolation. In any case, the projection of past behaviour into the future is close to impossible due to the fluctuation of FDI flows. In such a hypothetical extrapolation, it is difficult to justify the continuation of any trend. Instead, the chapter seeks to understand the main characteristics of the past in order to derive insights on possible future inward FDI trends in these 11 countries.
Keywords: foreign direct investment; Central and Eastern Europe; upgrading; middle income trap; locational advantage; obsolescing bargain
JEL Classification: F21; F23; O12; O33
Suggested Citation: Suggested Citation