FDI in Hungary: the first mover's advantage and disadvantage

124 Pages·2004·1.44 MB·English

EIB
PAPERS
Volume 9 No 2 2004
The internationalisation of production in Europe:
Case studies of foreign direct investment in old
and new EU member states
Export-platform FDI: the Irish experience 8
Frank Barry
Where do foreign firms locate in France and why? 38
Thierry Mayer
FDI in Hungary: the first mover’s advantage 62
and disadvantage
Magdolna Sass
FDI in small accession countries: the Baltic states 92
Gábor Hunya
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EIB
PAPERS
The internationalisation of production in Europe:
Case studies of foreign direct investment in old
and new EU member states

Contents
Preface by Sauli Niinistö, Vice-President 5
Conference speakers 7
The internationalisation of production in Europe:
Case studies of foreign direct investment in old
and new EU member states
Export-platform FDI: the Irish experience 8
Frank Barry
Where do foreign firms locate in France and why? 38
Thierry Mayer
FDI in Hungary: the first mover’s advantage and disadvantage 62
Magdolna Sass
FDI in small accession countries: the Baltic states 92
Gábor Hunya
EIBPAPERS Volume9 N°2 2004 3

Preface
The internationalisation of production essentially implies that firms produce their goods
and services in more than one country, often spreading different stages of production
processes across different countries. The last decades saw a rapid increase in the
internationalisation of production around the globe, in Europe in particular. Substantial
foreign direct investment (FDI) and the associated activities of transnational corporations
are the most visible signs of this aspect of globalisation.
Many factors are driving this process. An important one is that more and more countries Sauli Niinistö
have come to realise that the presence of transnational corporations could spur the Vice-President
development of their economies. Consequently, they not only reduced barriers to FDI but
also tried to attract it through various policy measures.
Against this background, the contributions to this edition of the EIB Papers (Volume 9,
Number 2) examine the experience with FDI of selected EU member states – old and new
(the companion edition – Volume 9, Number 1 – addresses causes and effects of the
internationalisation of production). Reflecting the diversity of countries considered, we
should expect experience to vary across countries, not least because some of the
factors that make some countries particularly attractive for foreign investors differ across
countries and, at the same time, are beyond the control of policy makers. Obvious
examples include the domestic market size, geographical location, culture and language.
However, other factors reflect policy decisions – such as taxes, human capital and public
infrastructure, and FDI promotion – and they could be designed with a view to attracting
and benefiting from FDI. An especially interesting question is whether policies specifically
targeting FDI hold more promise than policies that concentrate on creating an
environment that is conducive to investment in general – be it foreign or indigenous. To
foreshadow some of the insights coming from the case studies presented here, one can
argue that avoiding policy mistakes seems to be far more important than trying to find
the Holy Grail.
A firm understanding of what FDI and transnational corporations contribute to economic
and social developments in EU member states is of paramount interest to the European
Investment Bank, given its mandate to contribute to a steady and regionally balanced
development of the EU. And as the Bank lends to transnational corporations – small and
big – we certainly strive to fully grasp their role in member states’ economies. I am
convinced that this volume of the EIB Papers serves this purpose well, and I am pleased
that we can share our findings with those taking an interest in the further development
of an enlarged European Union.
EIBPAPERS Volume9 N°2 2004 5

The internationalisation
of production in Europe:
Case studies of foreign direct investment in old
and new EU member states
The 2004 EIB Conference on Economics and Finance, which was held at the EIB
headquarters in Luxembourg on January 22, examined the impact of cross-border activities
of transnational corporations on economic growth, productivity, employment, and
regional development in Europe. Presentations covered theoretical aspects and empirical
evidence pertaining to these activities as well as country case studies, reflecting the
experience of old and new EU member states.
Speakers included:
Frank BARRY, Philippe MAYSTADT,
of the University College Dublin President of the EIB
Gábor HUNYA, Magdolna SASS,
of the WIIW, Vienna of the Institute of Economics
of the Hungarian Academy of Sciences
Ari KOKKO,
of the Stockholm School of Economics Kristian UPPENBERG,
of the EIB
Jozef KONINGS,
of the Katholieke Universiteit, Leuven Zbigniew ZIMNY,
of the United Nations Conference on Trade
Thierry MAYER, and Development – UNCTAD
of the Université de Paris Sud
EIBPAPERS Volume9 N°2 2004 7
ABSTRACT
Ireland is the most successful EU economy in
attracting export-platform foreign direct investment
(FDI), and the increased FDI inflows of the 1990s
are widely agreed to have been one of the most
important factors in generating the remarkable
boom that the country experienced over that decade.
The present paper considers the confluence
of factors – domestic policy changes, fortuitous
developments in the European and global economic
environment, and the coming to fruition of policy
initiatives of earlier eras – that provided the
setting for the increased inflows of the period and
the changes that they wrought. One of the main
findings is that growth-enhancing economic policies
–including fiscal prudence, the maintenance of
labour-market flexibility and a focus on science-
oriented human capital formation – were crucial
for Ireland to derive the full benefits of its
FDI-attracting low-corporation-tax regime.
Frank Barry lectures in economics at University College Dublin.
([email protected]).
8 Volume9 N°2 2004 EIBPAPERS