The Contribution of Foreign Direct Investment to Transition Revisited

in The Journal of World Investment & Trade
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The Contribution of Foreign Direct Investment to Transition Revisited

in The Journal of World Investment & Trade


A firm can undertake Fm in a host country in two main ways: greenfield investment in a new facility (new site, new machinery and equipment, etc.), or acquiring or merging with an existing local firm; see UNCTAD, 2000, p. 100. In addition to these two modes of entry, the concept of "brownfield investment" can also be found in the literature on FDI in transition economies; see Meyer and Estrin, 1998; and Estrin, Hughes and Todd, 1997. The latter denotes a hybrid situation between greenfield and acquisition, whereby investments that are formally acquisitions, in substance more closely resemble greenfield projects; the foreign investor acquires the firm, but almost completely replaces the plant, the equipment and the product line.

2 FDI flows include the new, additional and subsequent investments carried out in a given calendar year, net of divestments. They arc recorded under the heading of "direct investment, net", in the financial account of the balance of payments. The Fm stock consists of the cumulative Fm inflows recorded since inception, adjusted for depreciation, exchange rate variation, accounting changes and other correcting factors. It is recorded in the international investment position of the country under direct investment assets (outward Fn) stock) and direct investment liabilities (inward FDI stock).

1 From a statistical point of view, the r-square value of correlation can be interpreted as the proportion of variance in the dependent variable (productivity gains) attributable to the variance in the independent variable (foreign share in privatization).

4 See their Web site: ��http: //www. transparency. de/documents/cpi/index. htm]�>. e For definitions of greenfield and brownfield FDI, see supra, footnote 1.

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