1. FOREIGN DIRECT INVESTMENTS AND INDUSTRIAL POLICY A COMPARISON OF RESULTS BETWEEN SLOVENIA AND HUNGARY Albert Puig GATE (Analysis Group in Economic Transition) Department of Economics and Business Universitat Oberta de Catalunya Research Project: Effects of Foreign Direct Investments in Economic Development, in the framework of the cooperation agreement between University of Veracruz (Mexico) and University of La Havana (Cuba) Contact: apuiggo@uoc.edu -In all countries have improved the contribution of the high and medium-high technology sectors to the trade balance. -In all countries have increased the exports weight of medium-high tech and high tech industries in relation to total exports. -The two extreme cases are Hungary and Slovenia: 88% of Hungarian manufacturing exports are conducted by subsidiaries of multinational companies while Slovenia this share is only 36%; therefore, 64% of Slovenian manufacturing exports are carried out by domestic companies. Our role: GATE received the request to analyze the subject of the research project applied to Central European Countries (CEC-5) during its historical transition period (1993-2001). The aim was to get some policy considerations which could be useful for policy makers in developing economies, particularly of Cuba during its transition process. For other side, the academic result should be a collective book which each author furnish two chapters (currently in press). Objectives:-To analyze the structural change during the transition process in CEC-5 -Identify the contribution of FDI to structural change -Analyze the differences between CEC-5 -Connect these differences with their respective policies related to FDI -In the CEC-5, manufacturing shifted from low-technology industries towards more technology-intensive industries. -In four of them, the technological restructuring was largely derived from the presence of companies with foreign participation (FIEs). Stresses especially the Hungarian case. -At the other extreme, Slovenia is the only country where the structural change of the FIEs, in relative terms, has been negative. Therefore, the restructuring of Slovenian manufacturing seems proceed mainly from the restructuring of domestic firms Structural change in CEC-5 Introduction Industrial Policies related to FDI -In all the CEC-5, the productive and specialization transformation have generated a progressive decrease of traditional production sectors and the promotion of high and medium-high technology -In Slovenia, this dynamic was led by domestic firms while in the other four countries considered the main actors were the multinationals firms. -In Slovenia, FDI has acted as a instrument of domestic companies restructuring; in the others (with a liberal model), foreign investors have contributed to productive change but not to the local firms restructuring. -These different policies and dynamics generate a segmentation of the local productive systems in the CEC-4 while in Slovenia, whit lower levels of FDI, they have been more settled down in the local economy and, therefore, they are less volatile and relocated. -Slovenia has followed a "strategic" industrial policy related FDI -The rest of the CEC have followed a liberal policy towards FDI Evolution of export’s specialization OECD classification about manufacturing industries according to their technological intensities High-tech industries Aircraft and spacecraft Pharmaceuticals Office, accounting and computing machinery Radio, television and communication equipment Medical, precision and optical instruments Medium-high-tech industries Electrical machinery and apparatus Motor vehicles, trailers and semi-trailers Chemicals, excluding pharmaceuticals Railroad equipment and transport equipment Machinery and equipment Medium-low-tech industries Coke, refined petroleum products and nuclear fuel Rubber and plastic products Other non-metallic mineral products Building and repairing of ships and boats Basic metals Fabricated metal products, except machinery and equipment Low-tech industries Manufacturing and recycling Wood, pulp, paper, paper products, printing and publishing Food products, beverages and tobacco Textiles, textile products, leather and footwear Change in manufacturing added value by industrial branches according to their technological intensities (1993 – 2001) (in basic points) All firmsFIEs CZR HUPOLSLOSLKCZRHUPOLSLOSLK High1,111,81,70,7-0,32,616,30,01,70,2 M-H2,78,21,51,4-1,23,111,63,1-12,70,6 M-L-0,9-5,1-3,13,48,01,5-11,511,26,814,5 Low-2,9-14,9-0,1-5,4-6,5-7,3-16,4-14,44,2-15,2 Ach7,640,06,310,915,914,555,828,825,330,5 RCh2,615,61,62,71,65,220,25,9-4,55,4 Conclusions Contribution to manufacturing trade balance of high tech and medium-high tech industries (in %) SlovakiaSloveniaHungaryPolandCzech Republic Year(1997) (1994) High technology Medium-high technology Total -5,3 -4,2 -9,5 0,4 1,0 1,4 -2,0 -4,4 -6,4 -5,3 -8,2 -13,5 -7,0 -2,7 -9,7 Year(2004) (2003) High technology Medium-high technology Total -2,5 1,3 -1,2 1,0 4,1 5,1 2,2 -0,2 2,0 -4,4 -2,9 -7,3 -3,0 2,3 -0,7 Exports weight of high tech and medium-high tech industries SlovakiaSloveniaHungaryPolandCzech Republic 1994200319942003199420031994200319942003 High tech M-H tech Total 3,7 26,2 29,9 5,9 40,2 46,1 9,3 34,8 44,1 11,8 37,7 49,5 12,2 29,6 41,8 32,1 40,5 72,6 4,1 22,3 26,4 6,6 35,7 42,3 4,8 36,0 40,8 14,7 44,7 59,4 Weight of foreign affiliates in exports (2003) SloveniaHungary % of exports3688 Country FDI stock in milions of dollars (1990 – 2009) FDI stock in % of GDP (2009) Average of FDI annual flows in % of Gross Fixed Capital Formation (1990 – 2009) Slovakia Slovenia Hungary Poland Czech Rep. 50.258 15.237 248.681 182.799 115.899 57,1 31,4 194,3 42,5 60,9 18,02 6,53 53,70 14,67 17,56 CEC-5612.87477,2622,09 Spain Mexico India Ireland Korea 670.550 309.523 163.959 193.302 110.770 45,9 35,4 12,9 85,1 13,3 11,29 12,86 3,44 26,86 2,33 Percentage of foreign firms in manufacturing (2001) Added ValueOcupationSalesExports Slovakia Slovenia Hungary Poland Czech Republic Average 56,1 23,5 64,9 52,0 48,5 49,0 36,4 19,4 45,2 32,9 34,1 33,6 59,3 29,4 72,5 52,0 53,3 74,9 40,9 87,9 66,2 69,0 67,8