Foreign Direct Investment and Catching Up of New EU Member States: Is There a Flying Geese Pattern?

Joze Damijan and Matija Rojec

Applied Economics Quarterly (formerly: Konjunkturpolitik), 2007, vol. 53, issue 2, 91-118

Abstract: The paper verifies the existence of the Flying Geese Model (FGM) in the case of inward FDI in Central European Countries (CECs) which entered the EU, in what way and to what extent FDI has contributed to the catching up, i.e. to the restructuring process and productivity growth in CECs manufacturing. The analysis shows that FDI is a very important vehicle of manufacturing sector restructuring and productivity growth in CECs, along the lines of FGM. Foreign investment enterprises are increasingly engaged in high and medium-high tech industries, much more than domestic enterprises. Also, productivity growth in CEC manufacturing is generally positively correlated with foreign penetration. However, high foreign penetration has a negative impact on productivity growth in high and medium-high tech industries. This is because foreign investment enterprises are mostly engaged in lower end technological segments of these industries and will only change when domestic absorption capacity of CECs will upgrade. At the existing stage of development in CECs, the catching up process via FDI, thus, takes place predominantly in industries at the middle of the technological intensity spectrum.

Keywords: foreign direct investment; flying geese model; catching-up process; new EU member states; restructuring of manufacturing industry; productivity growth; technological intensity (search for similar items in EconPapers)
JEL-codes: F21 F23 L60 O14 (search for similar items in EconPapers)
Date: 2007
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