Back to the Future
Chapter 8: Institutional Reform, FDI and the Locational Competitiveness of European Transition Economies
INTRODUCTION 1. This chapter addresses the role of institutions and institutional reform as a country specific competitive enhancing advantage affecting the location of inbound foreign direct investment (FDI). Our focus of interest will be on the European transition economies (TES). Our thesis (backed up by a limited amount of econometric and field research) is that the extent and quality of a nation’s institutions and its institutional infrastructure (II) are becoming a more important component of both (a) its overall productivity and (b) its capacity to attract inbound FDI.1 This, in turn, we hypothesize, reflects the belief by private corporations (both foreign and home based) that the role played by location bound institutions and organizations in 21st century society is becoming an increasingly critical determinant of the successful deployment of their own ownership specific, but often mobile, assets. This chapter proceeds in the following way. First, we shall offer a simple analytical framework which might help us to explore the thesis set out above. Second, we shall identify the more significant firm specific strategies and policies of host transition governments, which have both fashioned and been fashioned by changes in the world economic and political scenario over the past decade or so; and how these have affected the locational pull and push of multinational enterprise (MNE) activity. In particular, we shall examine the evidence of the links between the upgrading of the 11 of 16 Central and Eastern European countries, and their propensity to attract inbound FDI (vis à vis other areas...
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