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International Competitiveness Impacts of FDI in CEECs


  • Gabor Hunya

    () (The Vienna Institute for International Economic Studies, wiiw)


This paper follows the definition of international competitiveness of countries (nations) as defined by Trabold (1995) including the ability to sell, the ability to attract FDI and the ability to adjust - all these leading to the ability to earn. These components can be measured by specific economic indicators and brought into relationship with FDI and the performance of foreign affiliates in a country. The analysis focuses on five transition countries Estonia, the Czech Republic, Hungary, Poland and Slovenia (CEEC?5). These are the most advanced among the transition countries in terms of per capita GDP, FDI penetration and economic transformation. This paper contributes to the discussion on competitiveness by going through a number of industry competitiveness indicators attracting FDI, foreign penetration of industries, productivity levels and development, market shares in the EU. In order to measure the influence of FDI on the competitiveness in manufacturing, a unique database was set up based on company balance sheets in the five countries. The economic performance of the foreign affiliates could be compared with that of domestic enterprises. The highest share of FIEs (foreign investment enterprises) by all indicators was reached by Hungary in each year between 1993 and 1998. 70% of manufacturing sales came from FIEs, which employed 45% of the manufacturing labour force in 1998. The second place is occupied by Poland with 41% of sales and 26% of employment. The Czech Republic ranks third, with 32% and 20% respectively. The difference between Hungary on the one hand and the Czech Republic and Poland on the other was three times in 1994 and narrowed to two times in 1998. The most dynamic increase was recorded in the Czech Republic. In Slovenia and Estonia, foreign penetration is lower and increased more slowly than in the other countries. The positive link between foreign penetration and various components of international competitiveness holds true both at the aggregate and the sectoral levels. It is obvious that the activity of a strong foreign sector in manufacturing increases international competitiveness. In 1994-1998 GDP growth, productivity growth, structural change and profit rates were higher in countries with a stronger presence of FDI. The deeper the foreign penetration, the faster was the speed of structural change Hungary was first, followed by the Czech Republic and Poland in the period 1996?1998. This is relevant both for the change in the output structure and the country's exports to the EU. The size and industry distribution of foreign penetration depends on industry-specific features and on the characteristics of the privatization policy. The foreign presence remained relatively small in branches with great structural difficulties and oversized capacities, such as the steel industry. Privatization is not enough to set restructuring of these industries in motion. Sectoral policy and financial restructuring is necessary to make companies attractive for foreign take?overs. A duality between foreign- and domestic-dominated industries appeared in all countries and has been growing over time. It can be observed between modern, foreign-dominated industries on the one hand and traditional industries with both domestic and foreign companies on the other. It is also present as a foreign-domestic gap within the industries with both foreign and domestic companies. The dichotomy of productivity and profit rates between the foreign- and the domestic-owned companies in one and the same industry is largest in Hungary and smallest in Slovenia. In Slovenia the balanced relationship between the domestic and the foreign sector is coupled with a low average rate of foreign penetration and a relatively low presence of technology-intensive industries. The small gap between the foreign and the domestic sector may indicate a slow rate of technological progress and not spill?overs.

Suggested Citation

  • Gabor Hunya, 2000. "International Competitiveness Impacts of FDI in CEECs," wiiw Research Reports 268, The Vienna Institute for International Economic Studies, wiiw.
  • Handle: RePEc:wii:rpaper:rr:268

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    Cited by:

    1. Günther, Jutta, 2002. "The significance of FDI for innovation activities within domestic firms - The case of Central East European transition economies," IWH Discussion Papers 162, Halle Institute for Economic Research (IWH).
    2. Svetla Boneva, 2005. "Classification of the Main Economic Costs and Benefits of the EU Enlargement," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 86-99.
    3. Maria Segana & Hubert Gabrisch, 2002. "Intra-industry Trade between European Union and Transition Economies: Does Income Distribution Matter?," LIS Working papers 297, LIS Cross-National Data Center in Luxembourg.
    4. Bačić, Katarina & Račić, Domagoj & Ahec Šonje, Amina, 2004. "FDI and economic growth in Central and Eastern Europe: Is there a link?," MPRA Paper 83136, University Library of Munich, Germany, revised Nov 2004.
    5. Urmas Varblane, 2001. "Flows of foreign direct investments in the Estonian economy," University of Tartu - Faculty of Economics and Business Administration,in: Foreign Direct Investments in the Estonian Economy, volume 9, chapter 1, pages 1-30 Faculty of Economics and Business Administration, University of Tartu (Estonia).
    6. Jože Damijan & Črt Kostevc & Matija Rojec, "undated". "FDI, structural change and productivity growth: global supply chains at work in Central and Eastern European countries," IRMO Occasional Papers 3, Institute for Development and International Relations, Zagreb.
    7. Yusaf Akbar & Sonia Ferencikova, 2007. "Industrial Clustering and Global Value Chains in Central and Eastern Europe: Role of Multinational Enterprises in Industrial Upgrading," Prague Economic Papers, University of Economics, Prague, vol. 2007(3), pages 237-251.
    8. Jože Damijan & Črt Kostevc & Matija Rojec, 2013. "Global Supply Chains at Work in Central and Eastern European Countries: Impact of FDI on export restructuring and productivity growth," LICOS Discussion Papers 33213, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    9. International Monetary Fund, 2013. "Turkey; Selected Issues Paper," IMF Staff Country Reports 13/364, International Monetary Fund.
    10. Miklos Szanyi, 2005. "Do multinationals 'misuse' corporate income-tax holidays: an analysis based on Hungarian balance-sheet figures," IWE Working Papers 164, Institute for World Economics - Centre for Economic and Regional Studies- Hungarian Academy of Sciences.
    11. Carmen Nastase & Carmen Chasovschi & Mariana Lupan, 2008. "Investment And Innovation In Support Of Rural Development In Romania," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 2(10), pages 1-15.
    12. Bačić, Katarina & Račić, Domagoj & Ahec Šonje, Amina, 2004. "The effects of FDI on recipient countries in Central and Eastern Europe," MPRA Paper 83263, University Library of Munich, Germany.
    13. Anna Wziatek-Kubiak, 2006. "On Essence and Masurement of Changes in Competitiveness of the Accession Countries. Critical Review of Literature," CASE Network Studies and Analyses 0321, CASE-Center for Social and Economic Research.
    14. Ivan Angelov, 2001. "Positive and Negative Effects from the Integration of Bulgaria to European Union," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 24-61.
    15. Olivera Kostoska & Pece Mitrevski, 2013. "Estimating the FDI Impact on Economic Growth and Export Performances of the European Economies in Transition," Papers 1310.1342,
    16. Miklos Szanyi, 2002. "Spillover effects and business linkages of foreign-owned firms in Hungary," IWE Working Papers 126, Institute for World Economics - Centre for Economic and Regional Studies- Hungarian Academy of Sciences.

    More about this item


    foreign direct investment; competitiveness; CEECs; manufacturing; economic policy;

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General


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