Economic upgrading of Central and Eastern European economies through global value chain participation and foreign direct investment

Abstract

This paper links global value chain (GVC) integration and operations of multinational enterprises (MNEs) in the context of host economies upgrading. Economic upgrading is referred to as higher exported value added that has been generated in the domestic economy as a result of foreign direct investment (FDI). Particular attention is paid to the impact of GVC on selected Central and Eastern European (CEE) economies. An econometric model is estimated using panel data of 44 sectors for four CEE economies over the period 1995–2018. A primary source of data is the latest edition of the TiVA (Trade in Value Added). The most important variable in explaining domestic contribution to GVC was the flow of foreign inputs. Backward linkages are crucial for building the GVC presence of the economies. The variables of interest – FDI stocks and flows – have in general a negative impact on the level of domestic content in analysed economies.

Keywords

• Global value chains
• foreign direct investment
• multinational enterprise
• economic upgrading
• trade in value added
• international trade