Foreign direct investment in the storm of the COVID-19 pandemic and the example of Visegrad countries

Abstract

The immediate effects of COVID-19 on the global flows of foreign direct investment (FDI) were devastating, resulting in a large drop. Flows to the Visegrad countries were also affected but less than the world average. The fall in FDI was the result of underlying trends that started before the pandemic but accentuated by the latter, creating a “perfect storm”. These secular trends include the digitalisation of production and the birth of Industry 4.0, resulting in more asset-light international production and reorganisations of company networks, the sustainability imperative, making the impact of FDI more relevant than its quantity, and a slowdown in the liberalisation of the policy framework for FDI both in individual countries and at the multilateral level. The recovery of FDI from the shock of 2020 is expected to be long and it will be impossible to return to the pre-pandemic structural and geographical patterns. Building resilience and diversification of production at the expense of the search for the lowest-cost locations will be the top priorities of investors, forcing the host countries to revise their investment promotion strategies focused on cost reduction. In the Visegrad countries, the model based on low labour costs will sooner or later reach its limits.

The effect of COVID-19 on foreign direct investment inflows: stylised facts and some explanations

“…Kalotay and Sass [ 25 ] argue that not learning from the previous crises would be a mistake for various reasons and suggest a strong rationale for analysing and comparing at least the major crises affecting a large part of the world economy. Crises have in common the disruption of MNCs operations, making business as usual difficult or impossible and putting pressure on them to react by adjusting their operations.…”

“…It can be readily recognised that the two troughs of 2009 and 2020 are associated with the global financial crisis and the COVID crisis, respectively. Kalotay and Sass [ 25 ] suggest that the 2020 fall in FDI was the result of new developments that started well before the advent of the pandemic, and that the pandemic aggravated the situation to create what they call a “perfect storm”. This is why they believe that COVID was not a “game-changer” for FDI in terms of jump-starting fresh trends in FDI flows.…”

“…This observation indicates some sort of a delink between trade and FDI flows when FDI can be viewed as an alternative to trade. Kalotay and Sass [ 25 ] put forward various possible explanations for the sensitivity of FDI to the effects of the pandemic. One explanation is that COVID-19 reinforced the pre-existing trends that would have affected the growth of the volume of FDI adversely, even without the crisis.…”

Reinvestment and effective corporate income tax rates in V4 countries

“…Endrődi-Kovács et al (2018) and Hluskova (2019) demonstrated the upgrading potential of Hungary, Slovakia, and Poland, with limits caused by wage growth and lack of qualified workforce in Samsung company and the automotive industry, respectively. This trend was further exacerbated by Covid-19-related events (Kalotay & Sass, 2021). Braja and Gemzik-Salwach (2020) argue that in terms of the high-tech exports share in the total national merchandise exports, Slovakia and Poland underperform compared to the EU-27 average, while the Czech Republic and Hungary exceed the average.…”

A koronavírus-járvány kezelése a külföldi tulajdonú magyarországi vállalatoknál

“…Ugyanakkor érdemes megjegyezni, hogy a különféle vizsgálatok általában nem különítik el a koronavírus-járvány hatásait a más tényezők által okozott visszaesésektől. Pedig a mélyben hosszabb távú trendek (például a protekcionizmus erősödése, technológiai változások, a fenntarthatósági követelmény előtérbe kerülése) is munkálnak (Kalotay−Sass [2021]), amelyeket ideiglenesen elfed vagy éppen felerősít a világjárvány, és vannak "egyszeri", a járvány vagy a mélyben ható trendek hatásait erősítő történések (például az Ever Given konténerszállító hajó elakadása a Szuezicsatornában vagy a 2021. júliusi németországi árvizek pusztítása). Cikkünkben mi sem törekedtünk az egyes hatások "szétszálazására", inkább leíró módon és összegezve vizsgáljuk a világjárvány alatti történések következményeit.…”