Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 10: The importance of foreign-owned enterprises in the catching-up process
10. The importance of foreign-owned enterprises in the catching-up process 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,...
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