Author:

Keywords:

Foreign Direct Investment, global supply chains, performance, employment and export

Abstract:

This paper summarizes the effects found in empirical studies on firm and industry performance of Central and Eastern European (CEE) countries over the last two decades. It discusses Foreign Direct Investment (FDI) effects in three main areas based on the direction and the technology segment of where FDI has been attracted. The first part reviews the effects of the first round of inward FDI inflows in the early 1990s. It finds that a catching up process of transition countries in terms of GDP per capita has coincided with robust inflows of foreign capital, while its effects on productivity and other aspects of micro performance of local firms are still debated. Here, heterogeneity of acquired local firms in terms of absorptive capacity, size, productivity and technology levels may be the key to explain the effects on own productivity performance and spillover effects on horizontally and vertically linked firms. The second part focuses on the effects of outward FDI and mostly finds correlation between investing firm’s productivity and its outward FDI engagement. The evidence also shows positive effects on a number of investing firms’ performance characteristics, but no or limited effects on employment. Finally, the third part studies the most recent episode of FDI patterns and its effects on CEE countries in the age of global supply chains (GVCs). Based on scant studies so far, it shows that a positioning within individual GVCs may be essential for future economic growth with a clear preference for attracting FDI to industries of higherend technology intensity.