The Contribution of (Large, ‘Western’) Multinationals to The Catching-up of (Small, ‘Eastern’) Countries



The opening up of Eastern Europe has brought with it an influx of foreign capital in the form of foreign direct investment (FDI), most of which is market-oriented, whilst some of it is cost-oriented. Some of the more advanced Central and Eastern European countries (CEECs) are small (e.g. Czech Republic, Slovenia, Slovakia, Croatia, the Baltic states) and view the investments of multinational companies (MNCs) as being ‘engines of growth’, based on the experience of the small European nations after World War II (e.g. Bellak 1998). In general, ‘the linkages between development and MNC involvement have tended to become closer and less avoidable as economic activity has become more globalized.’ (Cantwell 1997:167; see also Sally, 1995; Bellak and Cantwell, 1998) Normally, the theoretical assumption prevails that both parties, i.e. both MNCs and small CEECs, will benefit from this process of ‘interactive transition assisted by MNCs’ (Ozawa 1992) and the catalytic role of inward FDI. Catching-up involves three phases (cf. Barta and Url, 1996), namely adjustment, restmcturing and growth. In accordance with these phases, the contribution of inward FDI varies over time (Donges and Wieners, 1994: 129): Whereas, in the short run it secures the survival of existing firms, in the medium-term it helps to rebuild the largely obsolescent capital stock (by replacing the depreciated stock of fixed capital) and generates growth in the long run.


Foreign Direct Investment Transaction Cost Comparative Advantage Small Country Intangible Asset 
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© Christian Bellak 2001

Authors and Affiliations

  1. 1.University of EconomicsViennaAustria

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