| The Vienna Institute for International Economic Studies - WIIW |
ABSTRACT
Foreign companies are setting a new standard for economic performance in the Czech Republic, out-performing domestic companies by several important measures. With 8.5% of the work force, they produced about 11.2% of the economy's total output in 1995. Although relatively few in number -- 2.7% of the total number of registered firms -- they invest more, produce more, export more and pay better than domestic firms. This study, using previously unpublished data, examines the behaviour of the 20 thousand foreign investment enterprises (FIEs) in the economy of the Czech Republic, the size, structure and dynamics of these companies, their performance compared with domestic firms, and their links to the privatization process.
While the Czech Republic still has a long way to go before it is thoroughly integrated into the world economy, the pace of foreign direct investment (FDI) inflows has clearly accelerated during the last few years. The existing foreign firms also continue to perform well, suggesting that growth will continue in the future. In the manufacturing sector particularly, the FIEs are not only more productive and export more on average than other firms, but also invest more in new technology. Foreign manufacturing enterprises apparently restructure faster, getting rid of redundant employees but also paying higher average salaries than domestic firms.
Foreign penetration varies significantly according to industry, as does the allocation of investment. Measured either by share of output or by size of the labour force, foreign participation in manufacturing is highest in motor vehicles, printing and publishing, rubber and plastics, non-metallic minerals, tobacco and foodstuffs. But there is also a surprisingly high penetration of foreign investment in electronics and medical instruments.
Privatization turns out to have been a mixed blessing for foreign investors. It has certainly created investment opportunities, but it has also thrown up barriers that have slowed, or in some cases deterred altogether, the involvement of foreign investors. According to our estimates about three quarters of FDI assets come from the privatization of former state enterprises.
Keywords: FDI, investment, trade, firm performance, privatization, economic policy
JEL Classification: F02, F15, F21, F23, L11, L12