Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)
The Impact of Enlargement on the Race for FDI
Abstract: This chapter assesses the effects of "Eastern"
EU-enlargement on the race for FDI and the policy implications. We start
from the proposition that the evolving production patterns of incumbent and
new member states determine the need for and the justification of location
policy (LP) and FDI promotion policy (FDI-PP). On the basis of empirical
production patterns, it is argued that while the specialisation outcome
dominates in the short run, the convergence scenario is more likely to
prevail in the medium term. Therefore, old and new EU-members will compete
increasingly for the same type of FDI. How EU-enlargement per se affects
the spatial distribution of inward FDI is described next. The role of
FDI-PPs and LPs in an enlarged EU are discussed on the basis of the
convergence outcome. Since the new economics of location competition and of
FDI-promotion cast serious doubt on the economic justification and
effectiveness of FDI-PP, the chapter concludes with a basic dilemma in the
race for FDI: namely, the greater ineffectiveness of FDI incentives in the
Single Market and fewer possibilities for differentiation of LPs. The
latter is due to harmonisation pressures, which calls for innovative policy
strategies by central and regional authorities.
JEL-Codes: F2; L6; (follow links to similar papers)
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