Table of Contents

The Economic Potential of a Larger Europe

The Economic Potential of a Larger Europe

Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald

The Economic Potential of a Larger Europe gives insights into past, present and future issues related to the ongoing EU enlargement process. Providing a unique forum for debate and a multiplicity of views and experiences from both high-profile academics and those who engage with enlargement on an implementation level, this book covers a wide range of topics that are key to a successful transition and integration process and thus to the provision of a prosperous growth environment within a larger Europe. Special attention is paid to monetary integration, notably entry into ERM II, on which representatives of the national central banks involved present their views.

Chapter 10: The importance of foreign-owned enterprises in the catching-up process

Alena Zemplinerová

Extract

Alena Zemplinerová1 1. INTRODUCTION In 2003, the stock of foreign direct investment (FDI) in the Czech Republic reached about USD 40 billion, which is the highest FDI stock per capita in Central and Eastern Europe. Whereas the world economy and Central and Eastern Europe (CEE) countries including Hungary and Poland experienced a decline in FDI inflows, FDI flows to the Czech Republic in fact accelerated in recent years2 – not least because of the special efforts the Czech government has made since 1998 to attract strategic foreign investors during the privatization of large banks and utilities as well as through incentives for green-field development. Against this background, an issue of current interest is whether FDI actually enhances welfare, which basically depends on how FDI enterprises perform and how they are distributed among sectors. Traditional trade theory analyses FDI as capital imports. Yet the modern theory of industrial organization assumes that firms which have the resources to operate internationally possess certain assets (technology, managerial skills, access to credit) that give them technical and organizational advantages over domestic firms. Therefore foreign firms might have other characteristics than domestic firms, and FDI might have additional effects beyond the mere import of capital (Caves 1996). So far empirical studies examining the performance of foreign-owned enterprises (FEs) have been inconclusive. Studies have found FEs to perform better than domestic ones and vice versa (Pfaffermayer and Bellak 2002, p. 13). Furthermore, it is not only the quantity but also the structure...

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