Structure and objectives of Austria's foreign direct investment in the four adjacent Central and Eastern European countries Hungary, the Czech Republic, Slovenia and Slovakia



motives and trade patterns by industries simultaneously. Fortunately, our data sets provide us the
particular opportunity to analyse the relationship between motives and trade patterns at once.
Furthermore we can investigate this relation on a disaggregated level.

Following the plausibility considerations above the paper is organised as follows: Section 2 provides a
review of theoretical as well as empirical literature and presents the data. Section 3 examines regional
and structural patterns of Austria’s FDI in the CEECs. Section 4 investigates motives of FDI and section
5 proves if the postulated motives can be verified by trade patterns of the affiliates. The final section
summarises and draws conclusions.

2. Review of the theoretical and empirical literature

According to DUNNING (1993, 56 pp.) we can distinguish four different motives of investment: natural
resources, (emerging) markets, efficiency enhancing and strategic assets. Adapting these motives to the
present European situation they can be explained as follows:

The aim of the first motive is to acquire some particular resources at a lower cost than at home. These
resources can consist of primary products and in particular of cheap labour. The second motive depends
on the expectation of new sales opportunities from the opening of markets, to which western companies
previously had no access. This strategy depends on the future income development of the CEECs and
thereby challenges the first motive. The third motive, efficiency enhancing, tries to utilise the specific
comparative advantages of an economy. Hence efficiency seeking FDI in the CEECs should mainly take
place in labour- and natural resource-intensive sectors. The fourth type of investment is led by long-term
strategic considerations. The final purpose of such investment is to gain an important stake in the market
over the long run. Since it is not easy to separate efficiency enhancing and strategic motives from the
other two kinds of investment the empirical evidence often separates only supply-based and market-
driven motives (e.g. KURZ and WITTKE, 1997).

AGARWAL (1996) distinguishes three different motives: natural resource seeking, market seeking and
efficiency seeking. He dismisses the strategic motive and splits supply-based motives into natural
resource seeking and efficiency seeking. The purpose of the latter one is to utilise relatively low costs of
labour. Hence this motive is mainly observed in labour intensive industries and processes. Moreover,
Agarwal provides an explanation of what impacts these different motives of investment have on trade.
For that purpose he distinguishes three different impacts: the substitution of former exports through FDI,
growing reimports of goods and services produced abroad by foreign affiliates of domestic firms and FDI
associated exports of goods and services. The last kind of exports can be explained by FDI which
stimulates - in particular at an initial stage - exports of capital goods, spare parts, raw materials, etc. to
the related affiliates. In addition, FDI may stimulate exports of other product lines neither produced by
the foreign affiliate nor exported earlier by the parent firm. This is because the new unit is usually able to
offer a closer market relationship to foreign customers. The overall impact of FDI on trade (and therefore
on domestic employment) is the sum of negative (export substitution, reimports) and positive effects
(associated exports). Although Agarwals study does not provide quantitative results his conclusion is
rather simple: FDI in natural resources, market oriented manufacturing industries as well as services is
likely to have a positive impact on the domestic economy. Only efficiency oriented FDI of industries and



More intriguing information

1. The name is absent
2. Evolving robust and specialized car racing skills
3. Emissions Trading, Electricity Industry Restructuring and Investment in Pollution Abatement
4. Knowledge, Innovation and Agglomeration - regionalized multiple indicators and evidence from Brazil
5. The name is absent
6. AN ECONOMIC EVALUATION OF THE COLORADO RIVER BASIN SALINITY CONTROL PROGRAM
7. The name is absent
8. The name is absent
9. The name is absent
10. The name is absent
11. Industrial Cores and Peripheries in Brazil
12. The name is absent
13. On the origin of the cumulative semantic inhibition effect
14. The problem of anglophone squint
15. A Multimodal Framework for Computer Mediated Learning: The Reshaping of Curriculum Knowledge and Learning
16. The name is absent
17. Solidaristic Wage Bargaining
18. Estimated Open Economy New Keynesian Phillips Curves for the G7
19. The name is absent
20. The name is absent