Međunarodna politika (Dec 2023)
Industrial Digital Interdependence and FDI Restrictiveness as Determinants of FDI for Eastern European Economies
Abstract
In the time of industrial supply chain redesign due to COVID-19 and geopolitical risks, Eastern European Economies (EEE) can benefit from their strategic location and interdependent and interconnected manufactured structure to attract foreign direct investment (FDI), particularly in the semiconductorindustry. As EEE emerges in the global semiconductor supply chain, they must balance FDI attraction with enhanced national security restrictions. By analysing the patterns of FDI inflows for 20 EEE over 2003– 2022, developing interdependence industrial indices, and assessing FDI restrictiveness, we find thatthe combination of highertrade interdependence in electronics industries, European integration, and more favourable FDI restrictiveness leads to higher FDI inflows to Eastern European Economies. The findings reveal that a higher level of semiconductor interdependence between Asian countries and EEE will positively correlate with an increase in FDI inflows to EEE. However, it has been verified that there is a weak negative correlation between the FDIin EEEandtheOECDFDIrestrictiveness index. Conversely, in prospects for strategic investment for the ICT, electric vehicle (EV) battery manufacturing, and automobile sectors in EEE, the concentration of FDI in the Western Balkans and other non-EU candidates may further increase, indicating the need to participate in the common FDI restrictions process to balance interests with core European values. At the same time, there is no evidence of a positive impact of increasing Chinese outbound FDI on FDIin EEE, indicating the Chinese preference for developed EU countries, while Germany serves as the main FDI origin in EEE. COVID-19, FDI Restrictiveness Index, Semiconductors, Export Control, FDI Screening Mechanism, Chinese Investment, Electric Vehicle (EV) JEL Classification: F15, F21, F23, O52.
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