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The Developmental Consequences of Foreign Direct Investment in the Transition from Socialism to Capitalism: The Performance of Foreign Owned Firms in Hungary

  • Lawrence Peter King
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    Abstract: This article examines the debate between Neoliberals and Modernization theorists on the one hand and dependency and world systems theorists on the other about the developmental impact of foreign direct investment in post-communist society. I test six hypotheses derived from this debate with logistic regression on a 1996 large-n random sample survey of Hungarian firms to see if foreign owned firms perform better than their private domestic counterparts. I then supplement these findings with three more logistic regression models of performance tested on a 1997 large-n, random sample survey of Hungarian firms. Foreign owned firms are found to have superior performance to domestically owned private firms on 6 of these indicators. Furthermore, while foreign owned firms create less demand for local producers than domestically owned firms, this is not at a level which is statistically significant. These findings support the neoliberal/modernizationist position that foreign investment creates high performing firms - which advocates claim are capable of driving the modernization of the entire post-communist economy.

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    File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp277.pdf
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    Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 277.

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    Length: pages
    Date of creation: 01 Jul 1999
    Date of revision:
    Handle: RePEc:wdi:papers:1999-277
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    1. Lizal, Lubomir & Svejnar, Jan, 1998. "Enterprise Investment During the Transition: Evidence from Czech Panel Data," CEPR Discussion Papers 1835, C.E.P.R. Discussion Papers.
    2. Claessens, Stijn & Djankov, Simeon & Pohl, Gerhard, 1997. "Ownership and corporate governance : evidence from the Czech Republic," Policy Research Working Paper Series 1737, The World Bank.
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    8. Mann, Catherine L, 1991. "Industry Restructuring in East-Central Europe: The Challenge and the Role for Foreign Investment," American Economic Review, American Economic Association, vol. 81(2), pages 181-84, May.
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    12. Bornschier, Volker, 1980. "Multinational corporations and economic growth : A cross-national test of the decapitalization thesis," Journal of Development Economics, Elsevier, vol. 7(2), pages 191-210, April.
    13. Boardman, Anthony E & Vining, Aidan R, 1989. "Ownership and Performance in Competitive Environments: A Comparison of the Performance of Private, Mixed, and State-Owned Enterprises," Journal of Law and Economics, University of Chicago Press, vol. 32(1), pages 1-33, April.
    14. Ofer, Aharon R & Siegel, Daniel R, 1987. " Corporate Financial Policy, Information, and Market Expectations: An Empirical Investigation of Dividends," Journal of Finance, American Finance Association, vol. 42(4), pages 889-911, September.
    15. Olivier Jean Blanchard & Maxim Boycko & Marek Dabrowski & Rudiger Dornbusch & Richard Layard & Andrei Shleifer, 1993. "Post-Communist Reform: Pain and Progress," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262023628, June.
    16. Shleifer, Andrei & Vishny, Robert W, 1994. "Politicians and Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 995-1025, November.
    17. Vining, Aidan R & Boardman, Anthony E, 1992. " Ownership versus Competition: Efficiency in Public Enterprise," Public Choice, Springer, vol. 73(2), pages 205-39, March.
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