Citation

Discussion Paper Details

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Title: Ownership, Capital or Outsourcing: What Drives German Investment to Eastern Europe?

Author(s): Andzelika Lorentowicz, Dalia Marin and Alexander Raubold

Publication Date: September 2002

Keyword(s): capital flows, corporate governance, Eastern enlargement, globalization and vertical vs horizontal FDI

Programme Area(s): International Trade and Regional Economics and Transition Economics

Abstract: The Paper takes a first look at the host and home country effects of German foreign direct investment (FDI) in Eastern Europe based on new survey data of 1050 investment projects in Eastern Europe by 420 German multinationals during the 1990s. We find that German investors transfer a substantial amount of financial capital to Eastern Europe. Furthermore, the most dynamic and innovative segment of the German economy invests in the East which explains why single owned firms dominate as the form of control. We also find strong evidence for vertical FDI suggesting that German corporations are outsourcing a substantial share of their production to Eastern European affiliates to exploit lower wages in the East.

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Bibliographic Reference

Lorentowicz, A, Marin, D and Raubold, A. 2002. 'Ownership, Capital or Outsourcing: What Drives German Investment to Eastern Europe?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3515