Globalization, Transnationals and economic policies.
(a) To what extent has FDI been important to the economic development of countries in Central and Eastern Europe over the last decade?
(b) What advice would you give to a government in Central and Eastern Europe on an appropriate policy towards FDI?
"The human capabilities and natural resources of most Central and East European
countries are impressive. What is lacking is the right institutional structure,managerial
expertise, access to foreign markets,entrepreneurial work culture,organizational
capabilities and monetary incentives to efficiently utilize and upgrade these resources
and capabilities."
John H. Dunning,
The Globalisation of Business
London and New York (p. 227)
In the years 1989 and 1990, most of the countries in Central and Eastern Europe and Central Asia (CEECs) started the transition from communist states to market economies. Given that the main task of economic transition is the structural change of the economic system from a socialist and extensive growth model to a capitalist and intensive one (Jensen, 2006), many CEECs have viewed FDI as a panacea to achieve fast economic growth. Indeed, FDI is expected to bring a wealth of benefits to the local economy including fresh inputs of capital and, most importantly, the impetus that knowledge from outside may bring to local processes of technological change (Barrell & Holland 2000). As a result, between 1991 and 1996 FDI inflows into European countries in transition more than quintupled (United Nations, 1997).
However, other economists tend to moderate the effects of FDI on structural change and claim that it depends fundamentally on the initial conditi ...