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Foreign Direct Investments and Productivity Growth in the Agri-Food Sector of Eastern Europe and Central Asia: An Empirical Analysis

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  • Kaditi Eleni Ath.

    (Katholieke Universiteit Leuven)

Abstract

Since the beginning of transition, Eastern European and Central Asian (ECA) countries compete against one another in attracting foreign investors by offering ever more generous incentive packages. Recent empirical research provides though little support for the idea that foreign direct investments (FDI) have a positive effect on local economies. This paper examines then whether FDI benefits are sufficient to justify the kind of policy interventions seen in practice. Analysis focuses on the impact of the increasing presence of multinationals on the economic development of transition economies in ECA through the generation of vertical and horizontal spillovers. Our theoretical model shows that policies which promote FDI are more likely to be justified on welfare grounds if multinationals engage in technology transfer that improves local suppliers' productivity, multinationals' technological advantage over the local competitors is only moderate, and the establishment of foreign affiliates does not lower the local processors' market share. Using data from the Business Environment and Enterprise Performance Surveys (BEEPS), empirical research suggests, however, that foreign investments are more likely to have a positive impact on their local suppliers, and a negative one on their local competitors, implying that the second and third conditions are unlikely to hold.

Suggested Citation

  • Kaditi Eleni Ath., 2006. "Foreign Direct Investments and Productivity Growth in the Agri-Food Sector of Eastern Europe and Central Asia: An Empirical Analysis," Global Economy Journal, De Gruyter, vol. 6(3), pages 1-32, September.
  • Handle: RePEc:bpj:glecon:v:6:y:2006:i:3:n:4
    DOI: 10.2202/1524-5861.1165
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    Cited by:

    1. David Dyker & Michael Emerson & Michael Gasiorek & Peter Holmes & Malgorzata Jakubiak & Andre Jungmittag & Vicki Korchagin & Alina Kudina & Evgeny Polyakov & Andrei Roudoi & Gevorg Torosyan, 2008. "Economic Feasibility, General Economic Impact and Implications of a Free Trade Agreement Between the European Union and Armenia," CASE Network Reports 0080, CASE-Center for Social and Economic Research.
    2. Maria E. de Boyrie & Mordechai Kreinin, 2013. "Openness to Import and Productivity," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 13(03n04), pages 319-331, December.
    3. Dairabayeva Karlygash & Carayannis Elias, 2014. "Targeted Trade-Related Policies and Manufacturing Firm Productivity in Eastern Europe and Central Asia: Effect of Corruption," Global Economy Journal, De Gruyter, vol. 14(2), pages 1-22, April.
    4. David Dyker & Michael Emerson & Michael Gasiorek & Peter Holmes & Malgorzata Jakubiak & Andre Jungmittag & Vicki Korchagin & Alina Kudina & Giorgi Pertaia & Evgeny Polyakov & Andrei Roudoi & Michael T, 2008. "Economic Feasibility, General Economic Impact and Implications of a Free Trade Agreement Between the European Union and Georgia," CASE Network Reports 0079, CASE-Center for Social and Economic Research.
    5. Metaxas, Theodore & Kechagia, Polyxeni, 2015. "FDI in Peru and Uzbekistan: A comparative analysis in brief," MPRA Paper 63849, University Library of Munich, Germany.
    6. Kechagia, Polyxeni & Metaxas, Theodore, 2016. "FDI in Central Asia: Uzbekistan," MPRA Paper 71326, University Library of Munich, Germany.

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