Relocation via foreign direct investment from old to new EU member states: Scale and structural dimension of the process

The paper analyzes two issues related to the relocation via FDI from old to new EU member states. The first is the nature and scale of the relocation via FDI, i.e. the existing and future potential for relocations. The second is structural characteristics of the relocation process, i.e. which industries are in the heart of the process. We apply the so-called flying geese model (FGM) framework to analyze the structural trends in inward FDI to the new member states. We claim that it is mostly efficiency-seeking FDI in manufacturing, which is the bearer of the relocation process. The existing stock of efficiency-seeking FDI in the new member states is very small in terms of overall EU-15 outward FDI, but at the same time results in rather high level of foreign penetration in the new member states. These limit the existing and future scale of relocation to the new member states. In terms of the structural aspect of relocation, efficiency-seeking FDI in the new member states is increasingly in medium tech and in lower end segments of high tech industries, while the attractiveness of these countries for low tech labor intensive production is gradually vanishing. Low tech industries will be increasingly relocated outside EU-25.