Renata Kralikova

Foreign Direct Investment - the Ticket to Global Markets and Future Prosperity? Renata Kralikova

When two people do the same thing, the outcome is often different. This is the main argument presented in this book that compares the effects of foreign direct investment (FDI) in Hungary and Slovakia during the 1990s and early 2000s. The book shows that FDI cannot fully benefit the host economy unless three conditions are met by the investors: (1) the initial static comparative advantage is overcome, (2) a shift towards more complex and sophisticated production occurs, and (3) subsidiary networks are established. Whether these three conditions will be met depends, in turn, on the institutional framework and macroeconomic policies of the host country. Arbitrary and non-transparent macroeconomic policies provide incentives for entrepreneurs and foreign investors to pursue short-term goals of quickly maximizing their own profits (Slovakia). Conversely, sound institutions and clear rules for all market players provide secure environment for long-term investment strategies and for overall development (Hungary). The book can help the students of political economy of transition economies and to policymakers designing reforms aiming at opening the economy to foreign investments.