Foreign direct investment in transitional economies : a case study of China and Poland

Date

1998

Authors

Du Pont, Michael

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Abstract

Profound changes are taking place in the nature of international business, both in terms of the drivers of trans-border transactions and the strategic orientation of the firms that engage in these transactions. While the dynamic forces of and regionalisation, acting in a dialectical manner, form the umbrella under which international business activities take place, it has been the impact of technological change that has enabled firms to act both globally and locally. Companies are searching for partners all over the globe, even to the point of collaborating with current or former competitors. New MNCs from Newly Industrialised Countries (NIEs) have recently emerged with new forms of investment and motivation, demonstrating that FDI can no longer be analysed in the classical manner as a flow of extra capital into a country where all else is held constant, with the static effects evaluated according to the tenets of orthodox marginal productivity analysis. Nor is it any longer a simple hierarchical process from capital rich to capital poor countries. There is growing concern that traditional theories of investment have largely been ineffective in explaining recent trends of flows of FDI, especially in the context of recent changes in the transitional once-socialist economies. There especially has been a need to identify the causes of recent changes in inflow of FDI to post-communist countries. This thesis presents a detailed investigation into the recent changes in the patterns and determinants in inflows of FDI to transitional economies in the light of FDI experiences in the economies of China and Poland. China and Poland provide ideal subjects for a case study since both have attracted quite sizeable amounts of FDI, once their reform programs had been introduced, despite both countries adopting quite different approaches on the road of transition to a market economy. It is found that patterns and determinants of FDI in a given country depends crucially on the degree of industrial advancement and the stage of entrepreneurial development of the country, changes in the process of internalisation of production, geography of the country and the nature and timing of policy shifts. There is a significant diversification of FDI in terms of the total number of source countries'. In both countries there are differences between developed- and developing- country firms in terms of the size, strategy and form of their investments. The most common form of investment in both countries initially was joint ventures with increasing shareholding by foreign partners, but recently the wholly foreign-owned interprises are becoming the main driving force of investment. Foreign firms indicate a much higher intensity for exports than local firms. As for the economic effects, FDI in China has so far been heavily concentrated in product lines characterised by high import intensity, limited backward linkages and limited diffusion of technology. In Poland FDI has been concentrated in mix product line characterised by some import intensity and by export orientation, stronger backward linkages and increasing diffusion of technology. These characteristics need not, however, to be treated as intrinsic features of FDI in these countries. Rather, they are mostly a reflection of the early stage of FDI participation and the nature of prevailing investment climate. Moreover, despite the shallowness of new product lines, their development impact in terms of employment generation and knowledge spill over effects appears to be considerable

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Keywords

China economics, Poland economics, foreign investment, international business investment, trans-border transactions, globalisation, foreign direct investment

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Thesis (PhD)

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DOI

10.25911/5d723862cd652

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