Foreign Direct Investment in the Czech Republic

Abstract

This paper evaluates foreign direct investment (FDI) in the Czech Republic and its regional development consequences after the collapse of state socialism. Two types of FDIs are identified: cross border export-oriented investments and market capture investments. The cross border export-oriented investments exploit low cost labor in the service of external markets and are typically concentrated in peripheral areas, mostly along the former West German border. This type of FDI is not likely to contribute to durable regional economies. The market capture investments involve both servicing the Czech market and integrating activities within a larger, multinational corporate network. This type of investment may create more durable sources of regional economic activity. A case study of the Volkswagen/Skoda joint venture is used to examine market capture investments and their consequences for regional development. This paper is based on interviews with plant managers and trade union leaders in companies with foreign investment, governmental officials at the various ministries and state agencies dealing with FDI, and information and data from the secondary sources.

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