What drives FDI in Central–Eastern Europe? Evidence from the IWH-FDI Micro database2 nov 2011
The focus of this article is on the match between strategic motives of foreign investors in Central–Eastern Europe and locational advantages offered by these countries. Our analysis makes use of the IWH-FDI-Micro database, a unique dataset that contains information from 2009 about the determinants of locational factors, technological activity of subsidiaries and potential for knowledge spillovers in the Czech Republic, Hungary, Poland, Romania and Slovakia. The analysis suggests that investors in these countries are mainly interested in low (unit) labour costs coupled with a well-trained and educated workforce and an expanding market with high growth rates in the purchasing power of potential buyers. It also suggests that the financial crisis reduced the attractiveness of the region as a source for localised knowledge and technology. There appears to be a match between investors’ expectations and the quantitative supply of unqualified labour, though not for the supply of medium qualified workers. The analysis suggests that it is not technology-seeking investors that are particularly content with the capabilities of their host economies in terms of technological cooperation. Finally, technological cooperation within the local host economy is assessed more favourably with domestic firms than with local scientific institutions – an important message for domestic economic policy.