FDI by early movers, followers and latecomers: timing of entry by German firms during transition in the Czech Republic

Abstract

We analyse Foreign Direct Investment (FDI) decisions by German firms with and without affiliates in the Czech Republic at different stages of transition. We find that FDI entry strongly depends on firm productivity immediately after the political and economic regime change, but less so with diminishing uncertainty. Likewise, distance-related transaction costs discourage FDI by latecomers considerably less than FDI by early movers.

Keywords:

• multinational enterprises
• firm-level productivity
• distance
• timing of FDI

JEL Classification:

• F23
• D22

Notes

¹Raff and Ryan (2008) are closest to our analysis below. However, they focus on sequential FDI decisions by a particular firm, rather than addressing the timing of FDI decisions across firms.

²NACE is the conventionally used French acronym of the classification of economic activities in the European Community.

³For details, see Mühlen and Nunnenkamp (2009).

⁴For details, see the discussion of alternative approaches in Neumayer (2003).

⁵See Appendix for sources, definitions of variables and expected signs.

⁶See Appendix for details. Mühlen and Nunnenkamp (2009) provide stylized facts and summary statistics.

⁷We differentiated between two sub-periods in unreported robustness tests. Major results, notably on the role of firm-level productivity, were hardly affected, for example, when separating between early movers in 1990–1995 and followers plus latecomers in 1996–2007. Details are available on request.

⁸The insignificance of firm productivity in the Heckman model for latecomers in 2000–2007 may be attributed to the small number of uncensored observations in this sub-group.

⁹The results are shown in Mühlen and Nunnenkamp (2009).