|
Article Excerpt
Abstract. In Central and Eastern Europe, outward foreign direct investment (FDI) has not yet become as a prominent factor in the region's reintegration into the world economy as trade liberalisation used to be in the early 1990s or inward foreign direct investment is currently. In the terminology of the investment-development path, with the notable exception of the Russian Federation, the region is in stage 2, whereby inward flows are still growing faster than outward flows. This article argues that a combination of the latecomer status of the region's transnational corporations and the transition shock can explain most of that laggard situation. It hypothesises that the enlargement of the European Union (EU) would give a major push to the outward foreign direct investment flows of Central and Eastern Europe (CEE), on condition that adequate government policies to promote those investments are put in place. The impact on the investment-development path, however, is uncertain, because accession to the EU is often accompanied by a surge in foreign direct investment inflows, too. Finally, the article also looks at the options available to deal with the specific problems of the Russian Federation in relation to capital flight, including ways of regularisation and potential return to the home economy.
Key words: Central and Eastern Europe, investment-development path, outward FDI, transition, transnational corporations
1. What does the literature tell us on outward FDI?
This article looks at the reasons why, in Central and Eastern Europe (CEE), outward foreign direct investment (FDI) has not yet become as a prominent factor in the region's reintegration into the world economy as trade liberalisation used to be in the early 1990s or inward FDI is currently. To put the question into an analytical context, it refers to the investment-development path (IDP) paradigm as originally suggested by Dunning (1981, 1986).
This article will start with a brief overview on what international economic and business literature so far can indicate for us on the topic. The subsequent section then briefly look at the setting of the issue by analysing the patterns of outward FDI from CEE, including its geographical destinations and industry composition. That is followed by a section dealing with outward FDI from CEE context of the IDP and a discussion on corporate strategies. Then follows a discussion on government policies, and their variations from country to country. In particular, the article will try to explore briefly how the Russian Federation could deal with its capital flight problem, and how other countries would rather need to promote outward FDI as their firms are improving their competitiveness and need to ensure their continued expansion through implantation abroad. The article will be completed with some forward-looking general conclusions.
The single most important reason for using corporate strategies to model outward FDI from CEE is the incapacity of classical economic theories to explain the current phenomenon of FDI and its patterns. On the basis of the classical theory of international trade only, based on the comparative advantages, and extended into endowment with the factors of production by Heckscher (1919) and Ohlin (1933), even the world of inward FDI would be difficult to theoretise. While the Heckscher-Ohlin theorem assumes that the factors of production move only within countries, once that restriction is removed, one would expect capital flow from high-income to low-income countries. That is surely not the case in the current world of FDI in which North-North flows dominate. If those flows followed the classical theory, the developing economies and the countries in transition should be the main recipients of FDI, and not the developed economies. And probably outward FDI from economies in transition should not exist at all.
International business theory, especially the eclectic paradigm of Dunning (1977, 1993, 1999) is better equipped to cover the outward FDI of economies in transition. The internalisation aspect of the eclectic paradigm, drawing on Ronald H. Coase's work (Coase, 1937) can be used as a point of reference to explain the behaviour of outward investing firms anywhere, including the economies in transition. As for the ownership advantages, originating in Hymer's (1960) and Vernon's (1966) contributions, their application is less straightforward. In principle, it should be the firms of the most advanced countries that possess those advantages and exploit them through international expansion. No wonder that, back in the 1960s, Vernon described those advantages as typical for United States firms. However, the fact that there are transnational corporations (TNCs) originated form developing countries was already observed by Louis Wells in the late 1970s (Wells, 1977, 1983). An original explanation talking about reverse motives and eventual ownership disadvantages is more recent (Sachwald, 2001). These theories can already somewhat better be adapted to the CEE context.
The paradigm of the IDP can also provide some indirect indications for the analysis of outward FDI from CEE. The concepts of the IDP are fairly well established in the international business literature. Its attractiveness is derived from its straightforward way of dealing with the link between level of development and FDI (more precisely, net international investment position). The stages of the IDP are easy to memorise and apply: stage 1: low inward and outward FDI, net inward investment position; stage 2: high inward and low outward FDI, increasingly net inward investment position; stage 3: outward investment catches up with inward investment; stage 4: outward FDI exceeds inward FDI; stage 5: net outward position falls again and fluctuates around zero.
A major strain of research on the IDP of special relevance here is the testing how accession to the European Union (EU) affects the international investment position of countries. It seems from the studies undertaken by Buckley and Castro (1998) for Portugal and Bellak (2001) for Austria that, ceteris paribus, in an initial phase, joining EU results in a faster growth of inflows than outflows. As a consequence, if country on the verge of moving from stage 2 to 3 joins EU at that juncture, probably that transition will be postponed for a while.
In-depth analysis on outward FDI from post-transition CEE has only recently started. Without being comprehensive, one can mention various efforts. In the Czech Republic, it has been Zemplinerova (2001) who has been among the first to investigate the main motivations and features of outward FDI. In Estonia, a similar effort was undertaken by a team led by Varblane et al. (2001). In Hungary, most of the research in this area has been done by Antaloczy (2001) and Antaloczy and Elteto (2002). In the Russian Federation, there have been a number of studies undertaken. Notable are the results of Bulatov (1998, 2001), based on, among other things, a first-hand company survey. Slovenian research is probably among the most advanced ones, with various authors--Andreja Jaklic, Matija Rojec, Metka Stare, Marjan Svetlicic, Andreja Trtnik, for example--analysing various aspects of outward FDI (see, for example, Jaklic and Svetlicic, 2002; Stare, 2002a and b; Svetlicic et al., 2001).
A caveat to this enumeration is imperfect information. This list may have overlooked research efforts, for example, in Croatia, because those findings--due to language constraints (most international scientific exchange takes place in English) or the limits of international funding (the EU usually prefers funding research in the accession countries)--are very probably much less communicated to the channels of international scientific discussion.
The research activities mentioned above cannot really take off without coordinators and synthesisers. In this respect, one has to mention efforts by Marjan Svetlicic from the University of Ljubljana, Slovenia, to bring together experts from various CEE countries (Czech Republic, Estonia, Hungary, Poland and Slovenia). That project became the starting point of various original studies. Another main focal person in stimulating and coordinating research in the area is Kari Liuhto, who has not just coordinated and personally undertaken a series of case studies and analyses, especially on the outward expansion of Russian firms (see Liuhto, 2001), but has organised events and publications around this and other transition-related topics (first at the Lappeenranta University of Technology, then at the Turku School of Economics and Business Administration).
All in all, the topic of outward FDI and TNCs from CEE has not yet entered the mainstream of international business studies and international economic literature. There are signs however that the topic is from time to time selected by researchers outside the CEE or the immediate neighbouring countries such as Austria and Finland. For example, there are manuscripts emanating from the Universite Paris I Pantheon-Sorbonne (Andreff, 2003).
It is also notable that international institutions such as the United Nations Conference on Trade and Development, and its World Investment Report team, in particular, have for years picked up the topic of outward FDI from CEE with the aim of reflecting, synthesising and further developing the results of current research. With the list of the top 25 TNCs, it has added first-hand survey-based information, too. That could stimulate new directions, and present original results in neglected aspects such as the implications of such outward FDI for policy (see also Kalotay, 2002). The author of this article has been pleased to be part of those efforts since 1997.
2. Patterns of outward FDI from CEE
2.1. TRADE, FDI AND TRANSITION
Immediately after transition had started--or independence had been gained, in many cases--trade liberalisation became the first vehicle of the reintegration of CEE into the world economy (EBRD, 1999). In most CEE countries, not only the degree of trade liberalisation tended to be radical, but also it was accompanied by the elimination of the State monopoly of international trade. In retrospect, the latter alone could constitute an economic revolution alone in most countries. But coupled with the disappearance of import protection, it prompted a major reorientation of trade, both in terms of partners and in terms of products.
From the mid-1990s, inward FDI was gaining importance in an increasing number of CEE countries. By the turn of the millennium, inward FDI became probably the most important engine of successful reintegration into the world economy (Kalotay, 2001). Data witness a major boom in inward FDI. From 1995 to 2001, the region's inward FDI stock quadrupled, from $40 to $160 billion (UNCTAD, 2002: 313). Back in 1995, the ratio of the inward FDI stock to the GDP (5.4 per cent) was only half of the world average (9.9 per cent). Within 5 years, by 2000, CEE had almost completely caught up with the rest of the word. Reaching 18.9 per cent, its inward FDI stock per GDP was only 1.1 per cent below the world average (20 per cent). Moreover, there are individual CEE countries where by 2000, that ratio had become very high even in global standards. In Estonia, for example, it exceeded 50 per cent and in the Czech Republic and Hungary 40 per cent. (In contrast, it was only 7.7 per cent in the Russian Federation).
Additionally, inward FDI in increasingly determining trade performance in CEE countries. In 1999, foreign affiliates accounted for 80...
|
