From Rust to High-Tech Hubs: FDI-Led Upgrading of Urban Economies in East Central Europe

Abstract

In the semi-peripheral-dependent market economies (DME) of East Central Europe (ECE), foreign investors are major contributors to economic growth and tend to establish low value-added operations. At the same time, they enjoy superior bargaining power over central governments. The domination of FDI constrains domestic agency in shaping economic outcomes, thereby locking DMEs into the semi-periphery. Moving to the sub-national level, this paper challenges these views by arguing that there is considerably more scope for local development agency in DMEs than the comparative political economy literature suggests. Moreover, FDI-led upgrading, defined as multinational companies engaging in high value-added activities, can take place at the local level even without the direct involvement of the state. The paper draws on fieldwork conducted in two formerly declining industrial cities in ECE (Cluj and Gdańsk) that have recently emerged as knowledge-intensive hubs targeted by high value-added FDI. The paper shows that FDI-led upgrading in Gdańsk occurred with the active contribution and cooperation of both local private and public economic actors, whereas in Cluj, upgrading took place with the contribution of local universities and through the forging of business links between foreign capital and local firms established by expatriates and local engineers.