The endogeneity problem and fdi in transition: evidence from the privatized glass sector in the Czech Republic

Abstract

Abstract:This paper analyses the crucial factors determining the foreign direct investment (FDI) going to the privatized glass sector in the Czech Republic. In our research we felt that there was a scant evidence in Central and Eastern Europe of the determinants of foreign direct investments (FDI) at the micro level and we were aware of the endogeneity issue of FDI. The aim of this paper is to fill these gaps. The choice of the glass sector allows for an analysis of a firm's micro characteristics that attract foreign direct investors in an industrial sector, while reducing the impact of macroeconomic factors in their choice. Our econometrical analysis, using original panel data from 1990 to 2006, gives strong evidence that foreign direct investors in the glass sector in the Czech Republic have chosen larger and more profitable firms that were intensively restructured and privatized at the beginning of the transition. Our results support the relevance of the endogeneity issue in the choice of foreign direct investors in transition countries.

New Evidence on FDI Determinants: An Appraisal Over the Transition Period

“…However, the process of privatisation has proved to be very tortuous and has often lead to the concentration of power, creating obstacles to FDI, and failing to achieve the goal of economic freedom. Some studies consider both the volume of privatization (Holland andPain, 1998 andSmarzynska, 2002) and the privatization procedure (Garibaldi et al, 2001;Carstensen and Toubal, 2004) on FDI, while others (Galeotti and Ryšavá, 2008) consider the numbers of years from privatization as determinant for foreign investment. In our model we try to capture the effects of privatisation by using the Holland and Pain's (1998) method.…”

Indikátory efektu přelévání v regionech

“…Pozitivní spillover efekty jsou považovány za protipól duální ekonomiky (Zamrazilová, 2007), jelikož jsou identifikovatelné prostřednictvím růstu produktivity práce domácích společností v hostitelském regionu. V případě, že PZI pozitivně ovlivňují domácí podniky v rámci stejného odvětví, dochází k identifikaci tzv.…”

“…Žádná firma není schopná 100% ochránit své investice do zaměstnanců. Samotní pracovníci jsou nositeli nehmotného kapitálu (Zamrazilová, 2007).…”

“…1), pokud v pozici dodavatele stojí PZI a snaží se vytvořit vazby na domácí odběratele, resp. distributory a obchodní organizace (Zamrazilová, 2007). Z hlediska zahraničního investora jsou horizontální spillover efekty považovány za nechtěné externality, naopak vertikální za žádoucí (Attalah, 2000).…”

Regional disparities in the spillover effect

“…Even though the investor's prime motive is the low cost of labour, multinational corporations spend money on various training programs and invest in human capital in many different ways (Čuhlová & Potužáková, 2017). No company is able to 100% protect its investment in employees; employees themselves are carriers of intangible capital (Zamrazilová, 2007).…”