Foreign direct investments and participation in global value chains: New evidence from advanced manufacturing industries in Central and Eastern Europe

Abstract

Foreign direct investments (FDIs) and trade within global value chains (GVC) have been considered one of the most important vehicles of economic development and competitiveness, especially for countries in transition. The countries of Central and Eastern Europe are competing to attract not only high amounts of FDI inflows but they also put emphasis on the FDIs’ sectoral structure. FDI inflows into advanced industries can represent the basis of technological development that will lead to the creation of a greater number of high-skill jobs and a higher level of innovation, thereby influencing the reduction of the economic gap in relation to developed countries. This study aims to explore the importance of FDI inward stock for GVC participation in the advanced manufacturing industries in eleven EU member states that transferred to market economies in the 1990s and attracted vast amounts of FDI inflows since then. The dynamic panel data analysis results indicate the importance of FDI inward stock in the manufacturing industry for the GVC participation in advanced manufacturing industries across this set of countries while also stressing the important implications of manufacturing share in GDP changes for these industries’ backward GVC participation. The findings confirm a positive association between attracting FDI in the manufacturing sector and GVC integration in advanced manufacturing industries. Such FDI targeting can be a vehicle for internationalization and development of high-tech and knowledge-based industries.