EU enlargement and consequences for FDI assisted industrial development

Many of the new member states as well as candidate and accession countries of the EU are confident that membership will result in substantially increased inward foreign direct investment (FDI) in manufacturing. This paper discusses the policy issues and challenges that cohesion and accession countries face, applying lessons that by now have become mainstream in the parallel discussion of FDI-assisted development in the developing economies. We argue that globalisation has attenuated the benefits that accrue from EU membership for latecomers, and they must now compete for FDI not just with other European countries but also with non-EU emerging economies. We posit that they should not base their industrial development strategy on mere passive reliance of FDI flows without considering how to concatenate their industrial development and the nature of the MNE activities they attract.

Keywords: FDI, EU, multinationals, absorptive capacity, globalization, development, enlargement

JEL classification: F02, F23, O14, O19

UNU-MERIT Working Papers ISSN 1871-9872