Strategic Foreign Direct Investment: An Overview of Statistical Evidence, Preliminary Empirical Work and the Idiosyncrasies of Theoretical Research on FDI in Central and Eastern Europe

First, the statistical evidence on FDI in the Central and Eastern European countries is shown. The volume of investment, the trends of capital inflow according to countries of destination and origin, and the distribution among industries are discussed. The main observations are the following : the volume of investment remained below the expected amount, Hungary attracted almost half of the investment over the whole period, whereas the Czech Republic got only the early investment. The foreign capital inflow seems to be diverted in time from the (North)-West part earlier towards the South-Eastern part of the region more recently. As far as the pattern of countries of origin is concerned, Germany is leading, followed by the US and Austria. The Far East is almost absent. As far as the industry pattern is concerned it is a far cry from the typical picture of industries which are characterised by early and a large amount of FDI. Some descriptive analysis was done on a pioneer sample of the 400 major international investors in the Visegrad-3 countries (the Czech Republic, Hungary and Poland). Investor country, industry and company determinants of foreign direct investment are dealt with. There seems to be an advantage of being near to the market, in particular for German and Austrian small to medium-sized companies. There is some interesting evidence about the role of intangible assets such as advertising and R&D, as most of the investment projects seem to be characterised by a low use of these intangible assets, but this seems to be compensated by the major investment deals which take place in industries which loyally advertise and do research. The size effect is not clear, but the sample of investors was biased towards larger projects. This puts forward some further hypotheses to investigate on whether the presence in the East is explained by market or low cost considerations and seen in a long term rather than in a short term perspective. Finally, this paper provides an overview of the theories on foreign direct investment behaviour by multinational companies. The different strands of this literature originating in international business, industrial organisation, location theory and the theory of the firm models are briefly mentioned. The emphasis is on the more recent analytical models of strategic behaviour, and, given the idiosyncrasies of the situation in Central and Eastern Europe as countries of destination of the foreign capital inflow, four major game theoretic related ways of analysis are expounded upon and criticised in the way they are inadequate to analyse FDI in the CEECs. These frameworks are: entry deterrence, waiting under uncertainty and learning from it, strategic trade policy and delocalisation. From this a tentative integration is suggested . • This work is part of the Ph.D. thesis of the author, which is financially supported by the N.F. W.O. (Belgian National Fund of Scientific Research). We would above all like to thank R. Veugelers and J. Konings. Also the help by the other members of the author's transfer committee, R. De Bondt, S. Estrin, M. Jackson and L. Sleuwaegen through very helpful encouraging comments is gratefully acknowledged, as well as the suggestions on empirical sources by K. Meyer and on analytical modelling by S. Vannini. All errors and fallacies remain ours. Comments of any kind are very welcome.