Some neglected effects of EU enlargements - rationalization and specialization

Andrea Szalavetz ()
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Andrea Szalavetz: Institute of World Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences

No 129, IWE Working Papers from Institute for World Economics - Centre for Economic and Regional Studies

Abstract: This paper develops and presents five propositions about the consequences of EU enlargement. 1. Although the most advanced transforming countries have achieved remarkable success in their modernization efforts by adopting a passive policy approach, their preparations for EU accession necessitate a more active, ‘developmental’ involvement by the state. 2. Accession will not generate an automatic increase in modernization inducing and trade-augmenting FDI. The net inflow of FDI may be joined by an outflow, so that some acceding countries could face a wave of divestment in some industries. 3. Competition between locations will resume, challenging the position of some affiliates that were purchased for market-seeking reasons during the privatization of the transition decade. Enlargement will bring about a reallocation of FDI stocks, as multinationals (MNCs) possessing subsidiaries of a market-seeking type in more than one candidate country rationalize their production. Rationalization may also affect subsidiaries established with resource-seeking investment motives. 4. Subsequent FDI in acceding countries will reinforce past specialization patterns, in terms of the shares of market-seeking and resource-seeking FDI received by specific industries. Candidate countries specialised in industries, which are typically recipients of market-seeking FDI, will increase their specialization in these industries. On the other hand, in candidate countries where industries with resource- seeking FDI have a leading share in total industrial value added, the share of these industries will increase even more. 5. Enlargement will accelerate changes in the investment motives of MNCs. Affiliates initially established with market- or resource-seeking motives will increasingly improve their position within the MNC, so that the investment motive turns to efficiency- and/or strategic asset-seeking. This trend already started in the transition decade and will gain momentum after accession.

Keywords: EU enlargements; rationalization; specialization; modernization efforts; competition; FDI; MNCs (search for similar items in EconPapers)
Pages: 12 pages
Date: 2002-05
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Persistent link: https://EconPapers.repec.org/RePEc:iwe:workpr:129

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