Multinationals in the Czech Motor Vehicles Industry: A General Equilibrium Analysis for a Transition Economy

Abstract

This study offers a computable general equilibrium methodology to analyse the involvement of multinationals in the motor vehicles sector in the post-communist Czech Republic. This allows estimating not only the economy-wide impact, but also the sectoral adjustments in a unified framework. The real levels of foreign direct investment received in the motor vehicles sector seem to produce only limited forward and backward linkages. Therefore, gross domestic product (GDP) and welfare increase slightly—and can even fall—after a certain degree of capital accumulation because saturation effects arise. Profit repatriation considerably exacerbates the negative effect on GDP and welfare.

Notes

See Latorre (2009) for a review.

For a wide description of the general features of this extension and its equations, see Latorre et al. (2009).

See Hertel et al. (2007) for details.

Percentage changes in welfare can be proxied in the GTAP model by the variation in real private consumption (Hertel 1997, ch. 1). Additionally, the evolution of real private consumption in the model is the same as the representative household's variation in real income to isolate from the changes in government activities.

The CPI is the numeraire for the rest of the variables in the model, although the CPI itself is expressed with respect to the Rest of the World (ROW) income. This means that CPI values, strictly, cannot be interpreted as a standard CPI; but note that, for the simulations performed here, the impact on the income of the ROW is negligible, since shocks in the Czech Republic are unlikely to affect the ROW to an important extent. So, for our simulations, eventually, the evolution of the CPI in terms of the income of the ROW should be a good proxy for the evolution of a standard CPI.

Additional information

Notes on contributors

Antonio G. Gómez-Plana

The authors acknowledge financial support from the Spanish Ministry of Education and Science, through the projects SEJ2008-05072-C02-01 (Maria C. Latorre) and ECO2008-02641 (A. G. Gómez-Plana). A previous version of this article is available in the Working Paper series edited by Fundacion de Cajas de Ahorros (FUNCAS), WP-546.