German direct foreign investment in Eastern and Central Europe: relocation of German industry?

Abstract

Against the background of the hotly‐debated issue of Germany’s attractiveness as a manufacturing location, the article assesses whether, and to what extent, the extraordinary growth of German direct foreign investment (DFI) into Eastern and Central Europe (ECE) can be connected to a relocation of German industry caused by unfavourable location conditions on the cost side of the German economy. Reviews the German DFI position in general, analyses the particularities of the growth patterns of German DFI into ECE, critically evaluates the perceived location advantages of the region, examines the reasons underlying the DFI decisions of German companies and the subsequent types of investments in ECE, and finally assesses their economic impact on Germany. Concludes that, although the majority of German investors transferred production capacities to ECE, these were only in the minority of cases connected to unfavourable conditions on the cost side of the German location. There are strong grounds to suggest that the net effect of all German DFI into ECE on German exports, production, domestic investment and ultimately German jobs, has been positive.

Citation

Tüselmann, H. (1999), "German direct foreign investment in Eastern and Central Europe: relocation of German industry?", European Business Review, Vol. 99 No. 6, pp. 359-367. https://doi.org/10.1108/09555349910300593