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The case of two largest exporters of automotive products—Volkswagen and PSC TMD—amply illustrate these concerns. They export, among others, parts of internal combustion piston engines accounting for around three‐fourths of total automotive network exports. Both firms need “local involvement” to operate in BiH. Volkswagen re‐established its presence in BiH in 1998 as a joint venture with Prevent Sarajevo. Another major exporter, PSC TMD, is fully owned by the Cimos Group with headquarters in Slovenia. The danger is that VW may be reluctant to transfer technology to its BiH joint venture, whereas Cimos may not have attractive technologies to transfer. Both cases corroborate weaknesses in BiH business climate: VW Sarajevo is a joint venture, whereas the Cismos factory in BiH is owned by “former Yugoslavs,” either Slovenes or Bosnians, or both. Whatever the case, “foreign owners” have an intimate knowledge of local conditions and do not need local insiders to navigate in BiH’s murky business environment. But they also do not have direct access to technological knowhow that leading producers in the world have.

Changes in various characteristics of BiH export basket point to limited transfer of technology embodied in investments in BiH, although no firm conclusion can be derived from this analysis. A closer examination of BiH export baskets suggests that neither technological content nor labor skills embodied in exported goods have changed significantly during the current export expansion phase corroborating the need to attract high quality FDI capable of technology transfer to sustain export performance. These tentative conclusions can be drawn from a more detailed examination of BiH exports in terms of technology and demand for labor according to different skills’ levels. In order to analyze the latter, we apply different taxonomies addressing various features of activities involved in production.<sup>9</sup> As will be shown below, the conclusions drawn from BiH foreign trade statistics may not be worth more than their quality.

The results of applying the taxonomy, developed by Landesman and Stehrer (2003), point in the same direction, i.e., towards the absence of a significant shift towards high‐tech intensive‐activities.

> 9 The goodness of results obtained hinges critically on the quality of a classification used to examine export baskets over time by factor and technology mix. The choice is always controversial.  There are woeful difficulties to define and measure factor intensity, level of technology involved and trade theorists have long wrestled with it. Some definitions of the groups of goods by factor intensity are overlapping and non‐exhaustive. Definitions used here do not suffer from these shortcomings‐‐all industries are taken into account and an industry appears only in one classification; and the classification distinguishes among four types of factors. Since some industries are intensive in terms of more than one factor, the results may be distorted. But even assuming that the initial classification captures adequately factor proportions at a given point of time, with the passage of time it may provide a distorted picture. Some industries may become more capital‐intensive or less active in technological and other terms.