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FDI Impacts on Employment in CEECs: Trends and Challenges

This comprehensive study explores the effects of Foreign Direct Investment in Central and Eastern European Countries (CEECs) on employment, focusing on the automotive industry. It covers FDI inflow, stock rate, economic activity distribution, and the sequencing of FDI during the transformation period from 2002 to 2003. The research delves into the employment repercussions of FDI by entry target and the share of foreign affiliates in manufacturing and automotive sectors. New trends emerging post-EU membership are discussed, emphasizing the need for policy support, skilled workforce, and productivity enhancement. While FDI has contributed positively to employment, exports, and technological advancement, challenges like underemployment of low-skilled workers persist, especially in less attractive regions. Strategies to promote integration into the domestic economy, attract higher investments, and increase supplier networking are highlighted as crucial for maximizing the benefits of FDI in CEECs.

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FDI Impacts on Employment in CEECs: Trends and Challenges

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  1. FDI and employment in CEECs by Gábor Hunyahunya@wiiw.ac.at

  2. FDI inflow, EUR million

  3. Inward FDI stock per capita, EUR

  4. FDI stock by economic activity, 2002/2003

  5. Sequencing of FDI during transformation

  6. Employment effects of FDI by entry target

  7. Share of foreign affiliates in manufacturing, 2001, %

  8. Share of FIEs in manufacturing employment, %

  9. Manufacturing employment change 1998-2001

  10. Manufacturing sector FIE/DE*100

  11. Share of FIEs in employment 2001, %

  12. New trends of FDI and their employment impacts • EU membership: lower transactions cost, concentration and specialization of locations • New FDI attracted by EU funds, agriculture, services • Export oriented efficiency seeking FDI grows faster than domestic market oriented • Labour cost advantage attracts more FDI from the West,but also diverts to the East • Need for integration into the domestic economy – policy support • Need for higher skilled workforce • Increasing competitiveness through increasing productivity • Unsolved problem: mass-scale under-employment of low-skilled labour-force and of unattractive regions

  13. Number of employees in the automotive industry, 1000

  14. Share of automotive industry in manufacturing employment, %

  15. Share of FIEs in automotive employment, %

  16. FDI trends in the automotive industry • Restructuring and development in CEECs entirely foreign-led • More expansion than relocation • Contributed to employment, exports, technological learning • Investor specific differences • Most integrated in the Czech Republic and Hungary, less in Poland and Slovakia • Assemblers reduce, component producers increase employment • Promotion and subsidizing requested by investors • Necessary to increase supplier investment and networking • Spillovers on training and development exist, need promotion

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