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 Rec
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Introduction 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 (EU) 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” (Burger et al. 2015)? 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 author is grateful to Andrea Szalavetz and Balázs Szent-Iványi for their comments, but he remains responsible for any remaining errors. The views expressed in this chapter are those of the author and do not necessarily reflect the position of the United Nations.
K. Kalotay (*) United Nations Conference on Trade and Development (UNCTAD), Geneva, Switzerland
© The Author(s) 2017 B. Szent-Iványi (ed.), Foreign Direct Investment in Central and Eastern Europe, DOI 10.1007/978-3-319-40496-7_2
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K. Kalotay
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 (Dunning 1993, 2000), and in the case of recent policy changes in Hungary, from the postulates of obsolescing bargain (Vernon 1971, 1981).1 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. The structure of the chapter is as follows: it starts with sections analysing the pre-crisis patterns of FDI, the growth of flows and stocks, the role FDI played in supporting the CEE region in re-joining the international economy, the competitive advantages of the EU-11, their policy implications and the development impact of inward FDI. This is then followed by an analysis of the challenges of the post-crisis period: the decline in FDI after the crisis and policy reactions. The subsequent section looks at potential scenarios for the future, and the final section contains concluding remarks.
The Pre-crisis Dynamism of FDI Between 1993 (the year in which the current structure of states in the CEE region took final form with the Velvet Divorce between the Czech Republic and Slovakia) and 2007 (the onset of the Great Recession in the world economy), the annual FDI inflows of the EU-11 increased 14-fold, from $6 billion to $78 billion (see Fig. 2.
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