Czech FDI Performance: Between Global Value Chains and Domestic Reforms
During the global recession, FDI inflows to the Czech Republic markedly slowed down, but soon returned to almost as high levels as before the crisis. The structure of these flows however has changed, as FDI projects are maturing and with major privatisati
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Introduction The Czech Republic had attracted significant amounts of FDI during its transition process. Investors benefited from the country’s stable political and economic environment, the above-average pace of its transition process, as well as its geographic proximity to EU markets. Even though the Czech Republic showed a relatively reserved attitude towards foreign direct investment during initial stages of its transition, investors soon found their way to the country. Besides the benefits that FDI usually brings, the Czech Republic soon started to pay attention to the harm that these flows can cause, namely, the negative impacts which large-scale profit repatriation has on the current account, as well as limited value added in production for exports—both clearly linked to problems with national competiveness and the business environment.
T. De Castro (*) • P. Hnát Faculty of International Relations, University of Economics, Prague, Prague, Czech Republic © The Author(s) 2017 B. Szent-Iványi (ed.), Foreign Direct Investment in Central and Eastern Europe, DOI 10.1007/978-3-319-40496-7_3
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T. De Castro and P. Hnát
Foreign direct investment fulfilled an important role in the country’s transition process, namely, as “an important source of financing and supplement of inadequate resources to finance both ownership structure and capital formation. Compared to other financing options, FDI also facilitates transfer of technology, know-how and skills, and helps local enterprises to expand into foreign markets” (EBRD 2001, 1). The main determinants of FDI in the transition countries of the Central and Eastern European (CEE) region, which include domestic and potential export market size, gravity factors, resources or skills endowment, progress in transition reforms and economic and political factors, were especially favourable in the case of the Czech Republic. As a result, together with its peers among the Visegrad Four (V4) countries, the Czech Republic has attracted the majority of FDI flowing into the CEE region in the initial stages of economic transition. If measured by share of gross capital formation or by FDI inflow per capita, it was the Czech Republic which attracted the highest relative amount of FDI in comparison to other V4 countries. Both privatisation and restructuring processes markedly influenced the structure of inward FDI flows in the Czech Republic. Even though the country started with the highest share of state-owned enterprises among the V4 countries, the speed of its transition (namely, in terms of smallscale privatisation) soon outperformed the others. Gravity factors and skilled labour eased the country’s restructuring towards a more modern service-based economy, which was soon reflected in the structure of FDI inflows. Since 1995, FDI inflows into manufacturing industries have accounted for less than a half of the total. Within industry, the chemical industry (from 5% to almost 20% of annual FDI inflows), and the food processing and tobacco industries (from 14% to 63% of annual FDI inflows) played the m
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