Direct Foreign Investment in Eastern Europe the Role of Labor Costs
During the Cold War, Western and Eastern Europe experienced a different economic development that resulted in different industrial structures and a huge gap of real wages. When the Iron Curtain fell, there was widespread expectation that low wages in the East would motivate Western businesses to relocate their production lines, moving jobs from the West to the East.This paper analyzes actual Direct Foreign Investment in the early years of economic transition with respect to the role of labor costs. Are jobs relocated from Western to Eastern Europe? Theoretical basis is the developmental theory of Direct Foreign Investment which is based on Asian experiences. It relates investment flows to stages of development and shows how factor cost differences lead to relocation of productive activity.The evidence in Eastern Europe, however, rejects the transferability of the model. Neither are labor intensive firms more actively investing, nor does investment concentrate in those industrial sectors where the host economy has comparative advantages. The empirical test does, however, find significant support for a proximity pattern of investment and a negative relationship of investment and diversification.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 37 (1995)
Issue (Month): 4 (December)
|Contact details of provider:|| Web page: http://www.palgrave-journals.com/|
|Order Information:||Web: http://www.springer.com/economics/journal/41294/PS2|
When requesting a correction, please mention this item's handle: RePEc:pal:compes:v:37:y:1995:i:4:p:69-88. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Rebekah McClure)
If references are entirely missing, you can add them using this form.