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Spillovers from foreign direct investment in Central and Eastern Europe

An index for measuring a country’s potential to benefit from technology spillovers

Society and Economy
Balázs Szent-Iványi
Gábor Vigvári

In the paper, we construct a composite indicator to estimate the potential of four Central and Eastern European countries (the Czech Republic, Hungary, Poland and Slovakia) to benefit from productivity spillovers from foreign direct investment (FDI) in the manufacturing sector. Such transfers of technology are one of the main benefits of FDI for the host country, and should also be one of the main determinants of FDI incentives offered to investing multinationals by governments, but they are difficult to assess ex ante. For our composite index, we use six components to proxy the main channels and determinants of these spillovers. We have tried several weighting and aggregation methods, and we consider our results robust. According to the analysis of our results, between 2003 and 2007 all four countries were able to increase their potential to benefit from such spillovers, although there are large differences between them. The Czech Republic clearly has the most potential to benefit from productivity spillovers, while Poland has the least. The relative positions of Hungary and Slovakia depend to some extent on the exact weighting and aggregation method of the individual components of the index, but the differences are not large. These conclusions have important implications both the investment strategies of multinationals and government FDI policies.

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. The Journal of Development Studies , 42 (4) : 678–697 . Mariotti , S. – Mutinelli , M. – Nicolini , M. – Piscitello , L. ( 2015 ): Productivity Spillovers from Foreign

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; Lengyel – Szakálné Kanó 2014 ). Productivity spillovers have been found between foreign and domestic companies ( Csáfordi et al. 2020 ), that decrease as geographical distance grows ( Halpern – Muraközy 2007 ). However, the interactions between the co

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. – Wang , Ch. – Wei , Y. ( 2000 ): Productivity Spillovers from Foreign Direct Investment: Evidence from UK Industry Level Panel Data . Journal of

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