Global Supply Chains at Work in Central and Eastern European Countries: Impact of Foreign Direct Investment on Export Restructuring and Productivity Growth

Abstract

Based on the global supply chains’ economics the objective of the paper is to ascertain to what extent FDI has been a factor of structural change and productivity growth in Central and Eastern European Countries’ (CEECs) manufacturing. By applying the empirical model that accounts for the impact of FDI on export restructuring (controlling for export demand, imports and intra-industry intensity of trade) and standard growth accounting approach to capture the effect of export restructuring on industry productivity growth we empirically accounts for the importance of the 'global supply chains' concept for export restructuring and productivity growth in CEECs in the period 1995-2007. Using industry-level data and accounting for technology intensity, we show that FDI has significantly contributed to export restructuring in the CEECs. The effects of FDI are, however, heterogeneous across countries. While more advanced core CEECs succeeded in boosting exports in higher-end technology industries, non-core CEECs stuck with export specialization in lower-end technology industries. This suggests that in what kind of industries FDI flows have been directed is of key importance. The paper adds to the relevant literature by explaining the mechanism through which FDI contributed to economic and technological restructuring in CEECs.

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