The Impact of European Integration on Regional Structural Change and Cohesion

Abstract

After the fall of the Berlin Wall and the start of the transition from a centrally planned to a market economy, foreign direct investment (FDI) inflows to Central and Eastern European countries (CEECs) increased substantially throughout the 1990s. Given the importance and the novelty of the phenomenon, a huge literature on FDI in Central and Eastern Europe has been developing since the beginning of the transition phase. It focuses mainly on the determinants and consequences of FDI at aggregate country or industry level,1 while little or no attention has been devoted to the spatial aspects of the activity of foreign firms. This chapter tries to fill this gap, by focusing on the location patterns of foreign firms in some Central and Eastern European regions. Several reasons explain the importance of this issue. In particular, FDI inflows into transition countries show a lot of variation not only across but also within countries, due to the diversity of economic development levels recorded in the area. This implies that while FDI is able to exert a positive effect at national level, this effect may be different at regional level, thus triggering regional economic inequalities. Studying where multinational enterprises (MNEs) locate should then help understanding how the benefits generated by FDI spread across regions in Central and Eastern Europe. Besides the obvious implications for regional policies, a regional approach to foreign firms’ location patterns allows to point out several interesting features concerning the determinants of FDI. A better comprehension of the mechanism behind the location decision of multinationals may thus help policy-makers improve the attractiveness of laggard regions.

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