16.7 Conclusion and perspectives on EU enlargement

While we shall refrain from making specific predictions about the effect of EU integration on the aggregate flow of FDI capital to the accession countries , we expect that many of the associated changes will be industry specific and will necessitate deep structural reforms in the short to medium term . In some industries EU integration will strengthen current trends, leading to closer cooperation and regional specialization. The effects of enlargement will vary considerably in accordance with factors such as labour intensity, economies of scale, service content and past tariff protection. Furthermore specific investor strategies and rivalry between firms inside and outside the EU will complicate the picture further, so the FDI potential of countries such as Poland will depend on industry- and investor-specific characteristics. Some institutional changes will facilitate FDI, but there will also be countervailing effects.

In most industries FDI can be expected to continue to expand. Several arguments in this chapter point in this direction. Firstly, formal integration is likely to have a large impact on FDI flows to service industries. Secondly, accession will give investors the opportunity to redesign their FDI strategies, for instance in the food processing industry, where foreign investors have already established a very significant position. Thirdly, accession involves institutional alignment, which will reduce the transaction costs of entering and operating in accession countries.

On the other hand production rationalization may in some cases disfavour sites in Eastern Europe, particularly in the case of capital- and labour- intensive industries such as chemicals and automotives. Here businesses are likely to centralize their production operations, leading to fewer but larger operations across Europe.

Finally, investors in declining industries may move their FDI to host countries further to the east in Europe. This would affect light industries that at present receive little FDI, such as textiles , in which the accession countries possess few industry-specific competences or natural resources.

In the long term, industrial specialization and clusters are likely to emerge in the region as a result of the structural changes that are already under way in the transition countries. Such clusters, including the wood “paper “furniture complex in Poland, will attract investors from both inside and outside the European Union. At the same time FDI in service- and market-seeking activities will expand if EU membership fosters stability and dynamic growth.

Notes

[1] We thank the Danish Social Science Council (SSF) for supporting the research for this paper under grant number 24-00-02-02, and Jana Penzes for her research assistance.
[2] Significant differences between past accession rounds and the present rounds limit our ability to use past experiences to forecast future developments. The southern European countries serve as a reasonable group of comparator countries in view of their lower level of income at the time of their accession to the EU. However their geographical distance from Germany speak against a comparison. In contrast the EFTA countries incomes were slightly above the EU average upon accession but they are located closer to Germany. Finally, the CEE countries are similar to the EFTA countries in respect of having extensive free trade arrangements with the EU prior to accession.
[3] Note that a factor-cost motive is included in the natural-resource motive (as one normally includes raw materials and unskilled labour in the natural endowments of a country), however it is narrower since it does not necessarily include motives associated with other natural resources, such as fish, arable land, mines and so on.
[4] In 2000 France s export to import ratio was 185 and Germany s was 122. In 2001 that for the US was 83 (Eurostat Comext Database).

We thank the Danish Social Science Council (SSF) for supporting the research for this paper under grant number 24-00-02-02, and Jana Penzes for her research assistance.
Significant differences between past accession rounds and the present rounds limit our ability to use past experiences to forecast future developments. The southern European countries serve as a reasonable group of comparator countries in view of their lower level of income at the time of their accession to the EU. However their geographical distance from Germany speak against a comparison. In contrast the EFTA countries incomes were slightly above the EU average upon accession but they are located closer to Germany. Finally, the CEE countries are similar to the EFTA countries in respect of having extensive free trade arrangements with the EU prior to accession.
Note that a factor-cost motive is included in the natural-resource motive (as one normally includes raw materials and unskilled labour in the natural endowments of a country), however it is narrower since it does not necessarily include motives associated with other natural resources, such as fish, arable land, mines and so on.
In 2000 France s export to import ratio was 185 and Germany s was 122. In 2001 that for the US was 83 (Eurostat Comext Database).

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