Foreign Direct Investment - The Ticket to Global Markets and Future Prosperity?

When two people do the same thing, the outcome is oftendifferent. This is the main argument presented in this book thatcompares the effects of foreign direct investment (FDI) in Hungaryand Slovakia during the 1990s and early 2000s. The book shows thatFDI cannot fully benefit the host economy unless three conditionsare met by the investors: (1) the initial static comparativeadvantage is overcome, (2) a shift towards more complex andsophisticated production occurs, and (3) subsidiary networks areestablished. Whether these three conditions will be met depends, inturn, on the institutional framework and macroeconomic policies ofthe host country. Arbitrary and non-transparent macroeconomicpolicies provide incentives for entrepreneurs and foreign investorsto pursue short-term goals of quickly maximizing their own profits(Slovakia). Conversely, sound institutions and clear rules for allmarket players provide secure environment for long-term investmentstrategies and for overall development (Hungary). The book can helpthe students of political economy of transition economies and topolicymakers designing reforms aiming at opening the economy toforeign investments.