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Hampshire RG21 6XS, England
The Technological Role
of Inward Foreign Direct
Investment in Central East
Europe
Johannes Stephan
Head, Department for Industrial Organisation and Regulation Economics,
Halle Institute for Economic Research, Germany, and Technische Universität
Bergakademie Freiberg, Germany (Habilitation thesis)
© Johannes Stephan 2013
Softcover reprint of the hardcover 1st edition 2013 978-1-137-33375-9
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First published 2013 by
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Contents
List of Tables vii

List of Figures ix
Acknowledgements xi
List of Abbreviations xii
1 Introduction 1
1.1 Motivation of the topic 1
1.2 Setting the research agenda: the technological aspect of
the ‘developmental role of inward manufacturing FDI’ 5
1.3 Conceptual framework for the analysis 12
1.4 Empirical evidence of inward FDI into Central East Europe 23
1.5 Structure of the book 32
2 The Database Used in the Empirical Analysis 35
2.1 The development of the IWH FDI Micro Database 36
2.2 The basic population for the IWH FDI Micro
Database 37
2.3 Survey sampling and implementation 39
2.4 Survey representativeness of the two IWH FDI
Micro Database waves 41
2.5 Survey questionnaires 43
3 Foreign Direct Investment Motives and the Match with
Locational Conditions in Central East Europe 45
3.1 Current state of the art in research 46
3.2 The data used for the analysis 49
3.3 Strategic motives of foreign investors investing in
Central East Europe 50
3.4 Summary of main results 65
4 Conditions of Internal Technology Transfer and Spillovers
between Foreign Investors and Foreign Affiliates in Central
East Europe 68
4.1 The current state of the art in research 69
4.2 The ‘role in the network’ and absorptive capacity:
a two-dimensional concept 77
4.3 The data used for the analysis 81
v
vi Contents
4.4 Characterisation of foreign affiliates in CEE within

the two-dimensional concept 83
5 Central and East European Innovation Systems as
Knowledge Sources for Foreign Affiliates’ Own
Technological Activity in CEE 91
5.1 Internationalisation of technological activity in
transnational corporations 93
5.3 The data used for the analysis and testable hypotheses 112
5.4 The importance of the host innovation system
for foreign affiliates’ own technological activity 116
6 Foreign Affiliates as Knowledge Source for Host Regional

Innovation Systems in CEE 145
6.2 The data used for the analysis and testable hypotheses 157
6.3 The importance of foreign affiliates for technological
activity in the host innovation system 161
7 The Role of Intellectual Property Rights for Technology in

FDI into CEE 177
7.2 The data and methods used in the analysis 188
7.3 Hypotheses development and empirical testing 193
7.5 Annex (complete econometric test results) 203
8 Conclusions on the Technological Role of FDI into CEE 215

8.1 Conditions for inward FDI in CEE to have a
developmental impact via technology 216
8.2 The research programme – some vital ingredients
into a future research agenda 226
Annexes 233
9.1 The questionnaire for the 2006–2007 wave 233
9.2 The questionnaire for the 2008–2009 wave 244
Notes 256
References 269
Index 293
List of Tables
2.1 Country composition of the IWH FDI Micro Database,

waves 2006–2007 and 2008–2009 40
3.1 Investment motives of foreign investments into CEE,
distinguished by regions of origin 51
3.2 Investment motives, distinguished by the time of entry
of the foreign investor, 1989–2009 52
3.3 Investment motives, distinguished by host economies 55
3.4 Investment motives, distinguished by industry
classifications 56
3.5 Endowment with locational advantages, distinguished by
host economy 58
industry classification 60
strategic motives 62
3.8 Partial correlations between strategic motives and
locational conditions 64
4.1 Shares of foreign affiliates allocated into the four
quadrants of the taxonomy 87
5.1 Strategic investment motives of foreign affiliates,
by country 125
5.2 Pairwise rank correlation between all determinants 133
5.3 Determinants of host scientific institutions assuming an
important role for foreign affiliates’ own technological
activity – the analysis of CEECs 135
5.4 Determinants of host innovation system actors assuming
an important role for foreign affiliates’ own technological
activity – the analysis of CEECs 136
6.2 Determinants of foreign affiliates assuming an important
role in the technological activity of firms in the host
economy 170
6.3 Determinants of foreign affiliates assuming an important
role in the technological activity of firms in the host
economy 172
vii
viii List of Tables

7.2 IPR gaps and direct technology transfer embodied in
rather standardised products 196
7.3 IPR gaps and foreign affiliate technological activity 197
7.4 IPR gaps and importance of sources of knowledge and
technology for foreign affiliate technological activity 199
7.5 IPR gaps and technological embeddedness in the local
host economy 201
A1 IPR gaps and direct technology transfer embodied in
rather standardised products: partial correlation and
ordered probit results with tt.mnc 203
A2 IPR gaps and foreign affiliate technological activity:
partial correlation results with sh.R&D and sal.inno 204
A3a IPR gaps and importance of sources of knowledge and
technology for foreign affiliate technological activity:
partial correlation and ordered probit results with own.tech 206
A3b IPR gaps and importance of sources of knowledge and
partial correlation and ordered probit results with comp.HQ 207
A3c IPR gaps and importance of sources of knowledge and
partial correlation and ordered probit results with comp.FA 209
A4a IPR gaps and technological embeddedness in the local
host economy: partial correlation and log-OLS results
with comp.sal 210
A4b IPR gaps and technological embeddedness in the local
host economy: partial correlation and log-OLS results
with comp.sup 212
A4c IPR gaps and technological embeddedness in the local
host economy: partial correlation and ordered probit
results with comp.SI 213
8.1 WEF IPR levels of host countries and average sizes of IPR
gaps between home and host countries, by groups of
foreign affiliates according to their host countries 225
List of Figures
1.1 FDI inflow, in % of World FDI inflows 24

1.2 FDI outflow, in % of World FDI inflows 24
1.3 FDI inflow, in % of GDP 25
1.4 FDI outflow, in % of GDP 26
1.5 FDI inflow, in % of Gross Fixed Capital Formation 27
1.6 FDI inflow, in EUR per capita 27
1.7 Inward FDI stock, in EUR mn 28
1.8 FDI-related income outflow (income and its repatriation),
in % of inward FDI stock 29
1.9 Share of FDI inflows in gross fixed capital formation 29
1.10 Inward FDI stock by major home countries in end 2008 30
1.11 Inward FDI stock by economic activity in end 2008 31
1.12 FDI outflow, in 1000 EUR mn per capita 31
1.13 Outward FDI stock, in EUR mn 32
4.1 The conceptual taxonomy and potentials for technology
transfer 80
4.2 Average levels of autonomy in all seven technology-related
business functions of foreign affiliates across countries 84
4.3 Levels of absorptive capacities per host country 85
4.4 Graphical representation of empirical taxonomy 86
5.1 R&D activity of foreign affiliates across countries: share of
research-active foreign affiliates 117
5.2 R&D intensity of foreign affiliates across countries 118
5.3 Innovative activity of foreign affiliates across countries:
share of innovative firms 119
intensity of product innovation 120
intensity of process innovation 121
5.6 Aggregated share of sales attributable to new or
significantly improved products across countries 122
5.7 Importance of exploiting and augmenting strategies
across countries 124
5.8 Average shares of local supplies and sales of foreign
affiliates across countries 126
ix
x List of Figures
5.9 Average levels of autonomy in three technology-related

business functions of foreign affiliates across countries 127
5.10 Age and size of foreign affiliates across countries 128
5.11 Averages of levels of importance of host innovation
system actors for foreign affiliates’ technological activity 129
6.1 Average (short-term) cost curves o f domestic firms in a
situation of entry of foreign-owned competitors 150
6.2 Importance of foreign affiliates for technological activity
in the host innovation system 161
6.3 Averages of product and process innovation intensities
in comparison to competitors (inno), by host country 164
6.4 Importance of embodied technology received from the
foreign investors’ networks, by host country 165
6.5 Technological quality of the host innovation system from
the perspective of foreign affiliates, by host country 166
7.1 IPR indicators in Europe, East and West 179
7.2 Observed IPR gaps between host and home countries
(IPR.gap) of the IWH FDI Micro Database of 2006–2007 190
Acknowledgements
I would like to thank all my colleagues who are involved with common
research ventures around the IWH FDI Micro Database and the EU
projects. Particular thanks go out to the distinguished researchers
Wladimir Andreff, Horst Brezinski, Rolf Hasse, and Paul J. J. Welfens
for their constructive comments and testimonies provided during my
habilitation project. Many other colleagues have provided important
comments on the work presented here – my gratitude goes out to all of
them.
The publishers and I wish to acknowledge the premission given for
the reproduction of copyright material from ‘Does Local Technology
matter for Foreign Investors in Central and Eastern Europe? – Evidence
from the IWH FDI Micro Database’ which was published in the
Special Issue of the Journal of East West Business on Market Entry and
Operational Strategies of MNEs in Transition and Emerging Economies,
15/3&4, pp. 210–47 © Taylor & Francis 2009.
xi
List of Abbreviations
CATI computer assisted telephone interviews

CEE Central East Europe
CEECs Central East European Countries
CEFTA Central European Free Trade Agreement
CMEA Council for Mutual Economic Assistance
EU European Union
FA foreign affiliate of an FDI project
FDI foreign direct investment
HRSTO Human Resources in Science and Technology Occupation
IB international business (literature, theory)
ICT information and communication technology
IPA investment promotion agencies
IPR intellectual property rights
ISCO International Standard Classification of Occupations
IWH Halle Institute for Economic Research
MNC multinational company
MNE multinational enterprise
NACE Statistical Classification of Economic Activities in the
European Community
NIS National Innovation Systems
NUTS Nomenclature of Statistical Territorial Units in Europe
OLI Ownership, Localisation, and Internalisation Advantages
(Dunning’s concept)
OLS ordinary least squares
OPT outward processing trade
ROR Raumordnungsregion
R&D research and development
TFP total factor productivity
TNC trans-national corporation
TRIPS trade-related aspects of intellectual property rights
USA United States of America
WTO World Trade Organization
xii
1
Introduction
This book intends to assess the role that inward foreign direct
investment (FDI) can have on the technological development of the
recipient economy, in particular where the recipient country is in the
process of economic catching up. This focus positions the analysis in
the book between the body of literature testing the existence of
economic effects of inward FDI on the one hand, and the management
literature concerned with strategies of multinational enterprises in host
regions with lower levels of economic development, possibly transition
economies, on the other.
The book starts out with a fairly comprehensive introduction that not
only discusses the motivation of the topic and the analytical implica-
tions that emerge from this focus for empirical analysis, but also provides
some of the characterisation of the countries at hand and the issue of
FDI itself.
1.1 Motivation of the topic
When the ‘historical experiment’ of central state planning collapsed

in Central East Europe (CEE), it was widely assumed that the formerly
socialist countries would be able to swiftly catch up with the West
(Lipton and Sachs, 1990; Herr and Westphal, 1991; Sachs, 1992). The
Washington consensus (Williamson, 1989, 1993; for critique, see for
example Stiglitz, 2002; Rodrik, 2006) explored a path of comprehen-
sive liberalisation of all internal and external spheres of the economy
and assumed that entrepreneurial activity,1 having been subdued for
so long, would now thrive in the new pro-economic and competitive
environment. Alas, history took a different path: the ‘lost decades’ of
socialist planning had produced technological stagnation and had dried
1
2 The Technological Role of Foreign Direct Investment
out individual entrepreneurial behaviour (because it was not regarded as

a core competence (see Åslund, 2002, p. 283), and would also have run
counter to the constituting criterion of the economic plan, resulting in
a shortage economy unable to satisfy demand to a very large extent. The
liberalisation of the thenceforth ‘transition countries’ was therefore in
need of external help (to overcome the technology gap and to supply
demand) – yet help in terms of development aid would have been
inconceivable in the light of the large amounts that would have been
necessary: the financial ‘transfers’ invested into the East German new
Länder are an impressive case in point. Rather, foreign private economic
activity had to be the main engine of the transition process and of the
process of catching up at least during the first years. This is the role that
FDI assumed.
FDI was assigned a pivotal role in the catching-up process of the Central
East European countries (CEECs). The list of objectives to which FDI
can contribute to at times of systemic transition includes the following,
perhaps most prominent, points:2
● Alleviating capital shortage: even if doubtful in the medium term

(credit gives rise to capital in a monetary economy), this assertion
may possibly be acceptable in the case of CEE due to an environment
of insufficient trust in the financial spheres around currencies that
are newly establishing themselves in terms of international convert-
ibility and acceptance as legal tender.
● Supply of technology: the socialist countries existed in economic
autarky from the West within their own integration area of the
Council for Mutual Economic Assistance (CMEA), which was both
self-inflicted (or governed by the Soviet Union) and at the same time
forced upon them by the West, exemplified in the CoCom-list (see for
example van Brabant, 1980/2012). They were consequently delinked
from the kind of technical advance so characteristic of the develop-
ment processes in the West since World War II. Those had been broad
in the sense of emanating from all sorts of industries and fields of
science, were driven to a large extent by private risk-bearing economic
activity, and have been – to a large extent, and by consequence – in
coherence with demand by the users of new technology.
● Privatisation: who else should have (i) the necessary capital or ability
to raise capital to foot the bill of desperately needed recapitalisa-
tion and restructuring, and (ii) the management skills, knowledge,
and expertise to make the transforming economic entities in those
countries internationally competitive?
Introduction 3
● Competition: central planning consistently excluded and necessarily

had to exclude competition from economic activity. It was foreign
trade liberalisation and inward FDI which was to assume the role of
enforcing competition on (formerly) state-owned monopolies.
Those four points can be directly deducted from the dichotomy in

the world during the socialist era: in economic terms, the distinction
between the two worlds, East and West, is best harnessed by characterisa-
tion of the constituting criteria of the two systems (see for example Riese,
1991, 1992): whilst the West was governed by competitive and (more or
less) free markets that incentivised private economic activity, the East
was governed by an overarching economic plan that transcended into
nearly all aspects of economic activity. Consequently, economic activity
was public and did not involve (or involved to only a very small extent)
privately organised economic activities.3 In the West, the coherence of
the economic sphere was based on competition4 and money. In the East,
it was administrative planning. The western world generated an envi-
ronment conducive to intensified economic foreign integration by way
of private foreign investment, private foreign trade and the cross-border
migration of labour; the conditions for those were framed in bilateral
and multilateral institutions such as the work of the then GATT and the
institution of international (reserve-)currency regimes, the International
Monetary Fund. The ‘communist bloc’, on the other hand, planned,
controlled, and executed external economic relationships through the
political administration such as the CMEA (see, for example, Brezinski,
1978), thereby not allowing the emergence of private internationalising
activities (private exporting and importing, outward or inward FDI with
internationally owned property rights, international licensing or fran-
chising etc.). Indeed, foreign ownership during socialist times rested by
default with the country hosting the property – no other legal arrange-
ment would have been consistent with the system of economic planning.
Where new firms were established involving cross-country ownership,
international production agreements in intergovernmental contracts
guaranteeing ‘inter-country socialist ownership’ had to align the respec-
tive economic plans of respective participants to preserve consistency of
the economic plans (see Brezinski, 1978, p. 172–3).5
Despite the obvious role that FDI could potentially play in the
transition process, the countries in CEE were in reality regarded as unat-
tractive locations for FDI in the early years, due to fears of a return to
communism and the significant political risks in some of the countries
(for example, the civil war in the former Yugoslavia, the uncertainties
souring the break-up of Czechoslovakia, the despotized political regime

in the early years of the Slovak Republic, and the non-transparent situa-
tion in Romania). When privatisation programmes in the CEE countries
started, they flooded the markets with institutionalised productive
capital to such an extent and in such a short period of time that prices
and values of to-be-privatised firms fell sharply (in Germany to symbolic
amounts, and even at times effectively negative due to guarantees and
state aid). It was to a large extent foreign capital that took advantage of
this (for an early account of the relationship of FDI and privatisation in
CEE, see Welfens and Jasinski, 1994, Chapter D). Once the worst tran-
sitional recession was overcome in the early 1990s and the economies
started on their process of catching up with Western European levels of
GDP per capita, CEECs became more interesting targets for FDI. This was
spurred not only by mass privatisation, but also by the expectation that
these countries would swiftly integrate their already industrialised and
now liberalised economies into the European economic area and hence
offer profit rates in excess of risk premia. The hope amongst CEECs was
that they would not only receive the capital needed to restructure their
industries but also that they would get access to modern western knowl-
edge and technology. Most of the CEECs adopted FDI policies based on
attracting as much FDI as possible without any concern about the quality
of investors (Rugaff, 2008). Over time and with rising stocks of produc-
tive capital and levels of economic development, wages also increased.
Where wage increases surpass productivity growth,6 the (unit labour)
cost advantages in CEECs melt away; yet now, two decades after the
transition process started, CEECs are still offering sizeable unit labour
cost advantages in comparison to the West.7 Where unit labour costs
are converging to western levels, strategic motives tend to shift towards
building industrial and service networks with the local host economies,
reaping localisation advantages beyond motives of pure efficiency.
Today, it is the technology-intensive networks that can be expected to
be particularly competitive not only as FDI projects, but also as drivers
of international competitiveness for the foreign investor in the home
country. An increasing number of foreign affiliates in CEECs assume
the character of ‘developmental subsidiaries’, build capacities of tech-
nological development, and become active drivers of knowledge and
technology in their own right.
This is the empirical starting point of this analysis. The starting
point unveils the overarching research question guiding the anal-
ysis: under what conditions can inward manufacturing FDI serve
as a panacea for transition and catch-up development in CEE?
Introduction 5
This analysis cannot, of course, answer that ambiguous question to a

satisfactory extent, yet it contributes some important insights that
should help generate answers.
1.2 Setting the research agenda: the technological

aspect of the ‘developmental role of inward
manufacturing FDI’
This overarching question forms part of a wider research agenda on the

developmental role of FDI in general. The agenda has been evolving
for many decades in the bodies of literature on economic development,
international economics and, to a lesser extent, in the international
business literature. This has produced ‘conventional wisdoms’ that
over time have adapted to new empirical trends and research results
generated by more powerful methods and firm-specific data. Three sets
of ‘conventional wisdom’ are summarised in a volume edited by two
Washington institutions: the Institute for International Economics and
the Center for Global Development (Moran et al., 2005, p. 2):
● The ‘Washington consensus’ enthusiasm is shared mostly by multi-

national investors and business lobby groups. It holds that FDI always
has a positive effect on the host economy, hence countries should
attract as much inward FDI as possible.
● Academic scepticism however prevails over the relationship between
inward FDI and economic development. It may well be that the
effects of FDI will not yield beyond the effects of any other domestic
investment.
● ‘Dirigisme resurrected’ describes a contemporary tendency by
policy-makers in some developing countries to revert to heavy-handed
regulation of inward FDI. This may include provisions for minimum
technology transfer, compulsory licensing, local content require-
ments and other measures targeted at increasing technology transfer
and spillovers to the benefit of the economy that hosts inward FDI.
This list obviously lacks some more critical views that may not make
it to a Washington-accepted ‘conventional wisdom’ yet still remain
important in many host economies, and not only in the third world.
Those views direct attention to the possibility that inward FDI may
cause environmental damage and may deplete natural resources, and
there are allegations related to land grabbing and its potential risks for
the indigenous societies. Neglecting those points certainly makes an odd
compilation: they may not apply to a large share of inward FDI, they
may be overstated in some cases, they may have been more frequent
some years or decades ago, and yet they do exist today, and in some
cases put immense strain on the host countries (see, for example, the
problems associated with environmental damage from oil extraction
in some African countries, predominantly Nigeria, see also the critical
discussion about the role of recent FDI inflows originating from China
around the developing world).
Moran et al. (2005) see the benign effects of FDI to be conditional
on and driven by an open trade and investment policy framework that
gives rise to competitive markets.8 On the other hand, where foreign
affiliates operate behind trade barriers and without local competition,
FDI may even subtract from host country welfare (ibid., p. xii).9 Today,
the empirical literature on average and at the most general level assumes
a rather positive view of inward FDI: “FDI is generally associated with
positive technological spillovers, economic growth, and increasing
income inequality. [ ... ] In all three areas there are, however, significant
counter examples in the literature which must be respected.” (Clark
et al., 2011, p. 2). As much as the Washington consensus can be criticised,
it did contribute to generating a competitive and liberalised economic
environment for foreign investors, hence it secured the right kind of
incentives for efficient economic activity, upon which sustainable
economic growth and development can build. It may also be argued that
the prospect of EU membership had an even stronger disciplining effect
(see perhaps most prominently Lavigne, 1998, in a very large body of
literature). It is the securing of such an economic environment that gave
rise to the general contention that inward FDI into CEECs had so far
positively contributed to systemic change and catch-up development.
This already sets the research agenda for this book: the objective is to
assess the conditions that have to be fulfilled so that inward FDI can have
a positive and important role in the technological process of catching up in
CEE. A positive general developmental role, not restricted to the tech-
nological impact, may be rooted in a number of effects at very different
levels:
● Inward FDI increases employment opportunities for local workers,

inasmuch as the additional investment has increased the amount of
productive capital which is now in need of a new stock of labour
to complement it. The intensity of this effect obviously hinges on
the capital or labour intensity of the investment, and on whether
employees and managers, in addition to capital, are transferred to the
Introduction 7
host location. Whilst foreign investment projects tend to pay higher

wages than domestic firms (often by trying to acquire the best avail-
able human capital embodied in the work force), the best paying jobs
are typically reserved for ‘expatriates’ of the foreign investor, and are
not accessible to domestic managers.
● Where inward FDI is associated with capital inflows (depending on the
definition of FDI) it increases the volume of capital investment in the
host economy – investment that possibly contributes to closing what
is called the savings gap10 in some of the traditional macro-economic
development literature (such as the Harrod–Domar growth model, or
Rostow’s Stages of Growth model, or Nurkse’s vicious circle).
● Inward FDI improves the host country’s current account via capital
imports and thereby contributes to closing the so-called foreign
exchange gap. This is obviously a one-off effect for each FDI project,
giving rise to no lasting improvements (see the recurring difficulties
of, for example, Hungary, where FDI inflow shortfalls keep generating
current account problems, or the contagion effects of the current
financial crisis, see Brezinski and Stephan, 2011). Moreover, FDI
will typically lead to profit repatriation at some stage (if successful,
this is after all amongst the most important raisons d`être for foreign
investment) and may turn this into a negative effect. This has
become a relevant issue in Central East Europe, with profit repatria-
tion amounting to around 10 per cent of FDI inflows (in Hungary,
this even peaked at slightly over 20 per cent in 2008: Hunya, 2010,
p. 13).
● Inward FDI may also have a potentially benign effect on the foreign
trade performance of host countries (in particular exports), assuming
that foreign firms are more expedient in conquering external markets
than are domestic firms (which is often assumed to be the case in
emerging markets). This effect, however, depends on transfer-pricing
behaviour of foreign investors: where FDI, for example, assumes the
character of outward processing trade or if relative corporate taxation
rules between countries motivate this, transnational corporations
(TNCs) will calculate higher prices for their imports from the internal
network and lower values for their exports. Local content rules may
reduce this effect where foreign investment is required to generate a
minimum share of the value of the products or services in the host
country.
● Inward FDI can have effects on competition and market structure
in host countries, which is particularly relevant in countries and/
or sectors where an insufficient endowment with domestic firms
competing for market shares results in low intensities of competition.

This was in fact an important issue in CEECs. This may equally,
however, turn out to be the opposite: if inward FDI involves entry
into oligopolistic markets and the foreign firm has more financial
leverage than domestic competitors, the foreign firm may rationally
try to compete away market shares of domestic firms in a Bertrand
competition scenario.
● Inward FDI can also alter sectoral structures,11 if foreign investment
is able to develop successful industrial clusters (which proved to be
particularly relevant in Central East Europe – in, for example, the
automotive sector in the Czech Republic) and if FDI flows into sectors
that were previously underdeveloped but which promise interesting
potential (that is, in need of substantial investment, in CEE the ICT
industry: Welfens and Borbély, 2009, and Welfens and Wziatek-Kubiak
et al., 2005).
● Traditionally, it is also argued that inward FDI will contribute to
government revenues of the host country by way of taxation of foreign
direct investment and their effects (for example, on employment).
Today however, particularly in emerging markets, governments offer
generous tax concessions to foreign investors (for example, in special
economic zones) and thereby forgo some of this benign effect.
● Inward FDI may transfer knowledge and technology previously
unavailable in the domestic economy, if the investment originates
from countries with higher levels of economic development and/
or from investors with higher levels of productivity. This knowledge
and technology may include anything from hard-core technology to
tacit knowledge (for example, technological skills and experience) to
management experience and entrepreneurial abilities. It may more-
over generate spillovers to the host economy, but only if a number
of conditions are fulfilled, such as: if the foreign investor chooses
to allow or even promote this in a positive sense, or is unable to
prevent the dissipation of its knowledge and technology in a negative
sense; if the affiliate of a knowledge-bearing foreign investor is able to
convey, teach, and explain the knowledge (even if it assumes a rather
tacit character); if the host economy is fit enough to absorb the alien
technology and make good use of it; and if the host economy’s insti-
tutional environment does not put the foreign owner’s intellectual
property at risk. Whilst this effect depends on many “ifs”, it is the
technological aspect that is most interesting for the case of inward
FDI into CEECs, due to the countries’ large technology gaps (see for
example Stephan, 2003).
Introduction 9
● In addition to technology transfer and spillovers, FDI affiliates may

assume an important role as players in the national innovation
systems of the host economies. This is particularly relevant in host
countries where there is a technology gap between themselves and
the home countries of their inward FDI.
● Further, FDI may also have an effect on the distribution of income in
the host economy, on labour market structural issues (skills-upgrading,
brain drain), on the contribution of FDI to structural/sectoral change
(again a particularly important issue in CEECs due to their prior
distortion of sectoral structures, see for example Kalotay, 2010). (For
comprehensive overviews, see for example Blomström and Globerman
and Kokko, 2001; others.)
All the above effects (and possibly some more, not mentioned here)
have the potential to increase host economy growth and to spur
economic development (see for example Sapienza, 2009, in an appli-
cation on CEECs). However, each of these beneficial effects may also
become detrimental: where the foreign investor is dominant, domestic
firms are driven out of the market; foreign investments typically generate
more income for domestic groups with lower propensities to save;
foreign firms often use their established foreign suppliers (that often
follow their clients) and hence drive out domestic firms in upstream
industries; FDI projects may crowd out domestic investors seeking credit
by raising capital locally on an as yet underdeveloped market; etc.
Adding to these qualifications of potentially benign effects of inward
FDI, there are more philosophical or ideological arguments against
inward FDI that are nonetheless noteworthy in a discussion of economic
effects.12
● First, a substantial share of foreign-owned economic activity in large,

powerful and dominant firms gives rise to a dualistic economic
structure, where the host economy assumes the role of labourer and
the foreign investor that of capitalist. Such FDIs will influence host
governments, and their lobbying may not always be targeted to the
benefit of the local economy. Moreover, dominant FDI projects may
divert host economy resources away from ‘natural’ local compara-
tive advantages (much like the Dutch disease problem). This way,
much needed food production is replaced by production of goods
catering to the needs of local elites and/or foreign consumers, not the
local population at large. Dominant foreign investors may not only
drive out domestic indigenous firms, but may also suppress domestic
entrepreneurship and thereby inhibit the development of small-scale

domestic enterprises.
● Second, foreign investments in emerging markets often seek the
localisation advantage of lower labour costs, possibly lower labour
unit costs. Where investments are into labour-intensive production
technologies, their international competitiveness depends on low
wages, and may lock the host economy into a low-wage trap that
cannot be overcome without external stimulus. Alas, where invest-
ments are into capital-intensive production, the host economy is said
to suffer from an aggravated unemployment problem. Finally, where
inward FDI is motivated by a laxer protection of labour security, or of
the environment or the like, the private profits of the investor may
exceed social benefits – and in the worst cases the benefits to the host
economy may even turn out to be negative.
● Third, where inward FDI is into countries with less developed infra-
structure, it will typically locate in urban centres and hence aggravate
the already pressing problems of rural–urban migration.
● Finally, host governments competing for foreign investment projects
are able to acquire concessions in the form of excessive (and possibly
targeted) protection,13 tax rebates, investment allowances, and other
state aids, either overt or hidden. It is often argued that domestic enter-
prises do not have this lobby power, because their threat of investing
elsewhere is less powerful due to lower investment volumes.
It is obvious that such a discussion about the extent of beneficial and

detrimental effects of inward FDI on the host economy is highly subjec-
tive and depends to some extent on the individual perception on what
kind of economic development is desirable and what character of the
development process may on the one hand increase growth but on the
other be socially undesirable (see the discussion on the varieties of capi-
talism, for example Hall and Soskice, 2001; Coates et al. 2005; Cernat,
2006; Tridico, 2011; Myant and Drahokoupil, 2012).
To harness this broad field of interest to something manageable (as
well as selecting the issues that are of the greatest interest to the author
of this book), the analysis presented here restricts itself to manufac-
turing industries, because here the largest potentials for technology
and knowledge interaction and transfer can be assumed, and because
empirical analysis can make use of more robust proxies than would be
the case in for example services, where technology is much more about
management techniques, and prices and costs are much more diffi-
cult to substantiate. The analysis presented here focuses on technology
Introduction 11
transfer and spillovers as the source of the developmental role via

inward manufacturing FDI. This is a controversial issue: considering the
conditions that prevail in CEE, will inward FDI in the manufacturing
industry assume an active and positive role for technological catch-up
development in those countries? How attractive is the region to inter-
national investors? What kind of investors does the region attract? Are
the manufacturing FDI projects dominated by ‘extended work benches’,
or ‘screwdriver industries’, or ‘outward processing trade’? Do FDI projects
originate from investors with the latest knowledge and technology at the
frontier area, with its foreign affiliates remaining excluded from this? Do
manufacturing FDI projects give rise to modernly equipped production
sites in the host economy? And if so, are these fully integrated into the
foreign investor’s network, that is, isolated from the domestic economy,
or do foreign affiliates trade with their host economy? Do affiliates of
foreign investors engage in their own technological activities such as
R&D and innovation in the host economy? Do they use local firms and
institutions in the regional innovation system to exchange knowledge
and technology? And finally, which firm- and region-specific factors
influence foreign investors’ decisions to locate technological activities in
a particular region and to source technology locally? Those questions
are all at the heart of the technological aspect of the developmental role
of manufacturing FDI (in the following, only FDI) and require analysis
both at the level of the host economies and at the level of the firm.
The emphasis is on the conditions of such a role and not on
constructing a general model or theory of technology transfer and spill-
overs. Indeed, a model-like description of the mechanisms behind the
transfer of knowledge and technology and their spillovers can only be
achieved if the concepts of ‘knowledge’ or ‘technology’ are treated as a
homogeneous goods of groups of homogeneous goods. Whilst this may
be applicable to the concept of ‘information’ to a large extent, knowl-
edge and technology are typically very heterogeneous both in their own
character (for example tacit vs tangible and codified, narrative vs formal,
trustworthy vs prejudice and misconception, etc.) and in their useful-
ness for each individual user, which – to complicate matters – may even
change over time. Whilst heterogeneities do not in general preclude the
development of theories that draw a general picture of a representative
average and the mechanisms involved, the many sources of hetero-
geneity both within the concepts of knowledge and technology and
between the many different foreign investors and their host economies
make this avenue a very complicated one, to say the least. The analysis
here is much less ambiguous, and confines itself to analysing the role
of FDI for the ‘technological’ dimension of the development process

by use of empirical firm-level data. The analysis makes use of some of
the latest theoretical and conceptual developments in the literature of
international business, strategic management, innovation economics,
institutional economics, and evolutionary economics.
1.3 Conceptual framework for the analysis
1.3.1 Technological development in economic theories

The ‘technological’ focus in theories of economic development tradi-
tionally operates at the macro-economic sphere and has in particular
been less concerned with the sources of technological developments
which originate at the firm level.14 Later additions to the theoretical
debates over technology and development integrate the institutional
dimensions of international and development economics. Most of these
theories are embedded in a world of general equilibrium. Regardless
of whether equilibrium is prevalent in reality at any point of time or
achieved/restored in the long term, or whether there is such a thing as
a tendency towards an equilibrium, those theories still largely remain at
variance with what may be considered to be at the root of dynamism
in a capitalist market system at the micro-level: that is, uncertainty,
transient gains and losses, adjustment costs in friction phases, the
stochastic and non-linear character of technical advance, and last but
very importantly, the diversity of firm characteristics, reactions, and
strategies (firm-heterogeneity, see for an early account Young, 1928). In
any dynamic or evolutionary theory, equilibrium cannot exist, because
everything keeps changing (see Nelson and Winter, 1982).
Indeed, it may be argued that there is a trade-off between those two
families of paradigms: general equilibrium models can be viewed as
theoretical benchmarks for assessing the mechanisms at work if the
economic system is largely frictionless (perfect competition), and com-
putable general equilibrium models help to assess the likely effects
of, for example, policy interventions. Dynamic micro-analyses on the
other hand command less sweeping assumptions, hence are closer to
the reality of a dynamic world, and yet are rather ill-equipped to predict
macro-effects of micro-phenomena (as for example the effects of inward
FDI), the outcome of political interventions for the whole economy
(even if policies are targeted at the firm level), or exogenous or asym-
metric shocks for the whole economy.
Somewhere in this middle ground between the two extremes of
macro- and micro-level analyses are meso-level analyses that assess the
Introduction 13
development of individual sectors (for an application of this on the

Central East European ICT industry, see the large body of research on
this issue published by Paul J.J. Welfens), or meso-analyses that focus
on sectoral change within the macro-sphere, here largely following
macro-theories of economic integration, as for example (revealed)
comparative advantages in Ricardian or Heckscher-Ohlin frameworks.
1.3.2 The issue of heterogeneity

More recently, other strands of research have tried to assess techno-
logical development from the firm perspective, allowing for dynamics
at the micro-level and in particular firm-heterogeneity. They are typi-
cally listed under the headings ‘Innovation Studies’, ‘Schumpeterian
Competition’, or ‘International Business’ and constitute hybrid concepts
between (micro-)economics and business studies. However, each of them
largely remains limited in scope by focussing on the micro-level with
only limited leverage on the macro-level of economic growth, let alone
economic development. They also remain largely fragmented in their
own theoretical view of the world, lacking a common paradigm.15
The work of Melitz (2003) and later developments following for
example the ‘self-selection’ (fixed costs) and ‘learning-by-exporting’
(endogenous growth models) concepts (see for example Helpman et al.,
2004; Helpman, 2006, in a world of general equilibrium) may serve as
a link to incorporating firm-heterogeneity into technological develop-
ment by modelling the impact of trade liberalisation (and a reduction of
other institutional trade costs) on firm productivity – and via inter-firm
reallocation on aggregate productivity of technological development
(generating Ricardian comparative advantages, see for example Love and
Mansury, 2009).16 Another possible path of theory development may
be derived from micro-level analyses, namely CDM models (Crépon,
Duguet, and Mairesse), linking innovation inputs at the micro-level to
innovation outputs and labour productivity at the firm level. But how do
the insights generated in these models link up with the macro-problem
of economic development?
The most straightforward way to link micro-economic studies that
are able to consider heterogeneity for the issue of technological devel-
opment and the macro-level of economic catch-up development is to
conceptualise the issue of heterogeneity as a micro-foundation and
simply aggregate as usual, but by use of groups of firms and respective
economic sectors that share common characteristics with respect to the
technological effects. This, however, is still far off the kind of hetero-
geneity observed in FDI issues: for example in CEECs, FDI projects in
high-tech sectors sometimes remain even less technologically active

than FDI projects in more traditional industries: FDI may be used to
conquer markets, with the local foreign affiliates having no part in the
technological development of for example pharmaceuticals; or: even
high-tech industries will require some degree of low-tech activities –
being intellectual property-sensitive, firms that want to exploit poten-
tial efficiency gains from investing in CEECs may prefer to organise
these activities under ownership control rather than outsourcing (the
internalisation-issue).
Another possibility to link micro-technological development with
macro-economic technical advance is by assessing the role of institu-
tional framework conditions for the technological activity of firms: it is
institutions that give rise to a framework that incentivises a particular
behaviour. The effects of these incentives may vary in magnitude and
intensity across firms and other actors of an innovation system, but the
direction of those effects can be assumed to be rather homogeneous
across heterogeneous firms in heterogeneous host countries.
Today, equilibrium models often are held to remain important as
theoretical reference points for analysis explicitly departing from the
equilibrium paradigm: this is because the former are based on pure
deductive model-building, whilst the latter are less strict in the sense of
allowing even conflicting explanations and predictions. It may hence be
argued that strict analysis still has to consider a stringent theory, even if
the matter of analysis is in direct opposition to the assumptions of the
theoretical reference point. For firm-level analysis, this may for exam-
ple involve the extension of analysis of technological effects of FDI that
are rooted at the level of the firm to the implications of these micro-effects
for technical advance at the macro-sphere. And this would have to be
done within the framework of general equilibrium models: where, for
example the analysis finds positive technology spillovers emanating
from foreign firms in a particular sector (that is, positive technology
effects at the micro-level), the interpretation of their macro-implications
would still require consideration of implications on foreign trade special-
isation, of effects on capital/labour ratios, of effects on labour markets,
on aggregate demand, wages, savings, etc. Unfortunately, the results of
such kinds of analysis remained highly ambiguous, even where very
powerful analytical techniques were applied.
The analysis presented here, however, follows a different path: the
conditions of positive technological effects at the firm level are deducted
from concepts and theories at the firm level and tested empirically for the
particular case of CEECs. By identifying the relevant conditions, this use
Introduction 15
of theory is able to make a convincing proposition for the technological

role of FDI at the level of the firm. Whilst this does not necessarily
pertain to effects on the level of the whole economy with inter-
actions between firms and sectors and markets and macro-aggregates,
whilst the conditions for the translation of these technological effects
to aggregate total factor productivity remain unclear, this conceptual
framework does single out the pre-conditions for technical advance at
the macro-level that emanates from the channels generated by inward
FDI at the micro-level.
1.3.3 The method of analysing conditions of

technology transfer and spillovers
A large share of the literature concerned with the technological aspect
of the developmental effect of FDI aims to measure the amount of
technology transfer and spillovers. It often uses firm-level AK-models
(production functions, TFP analysis of firms or of firm groups). Despite
its large size, the results of this body of literature still remain largely
inconclusive, which may be owing to the large extent of heterogeneity
in the firms as subjects of analysis, as well as heterogeneity of foreign
investors, the host and home economies, etc. Lipsey and Sjöholm (2005)
hence hold that “the search for universal relationships [with respect to
the impact of FDI on home countries] is futile” (ibid., p. 40).
Industry-, region-, or country-specific analysis of extents of knowledge
and technology transfer or spillovers is not conducted here, because of
the many measurement problems and the resulting inconclusive results
generated in the past on this issue. With respect to industries, it has to
be noted additionally that the statistically usual classifications typically
do not sufficiently represent homogeneous technologies applied at the
shop floor: even high-tech industries (see for example the classification
by Pavitt or the OECD of the one from Vienna) involve some rather
low-tech tasks, and often FDI splits tasks between regions according to
the intensity of knowledge and technology. So even if FDI in CEECs is
found in high-tech industries, the technological content of tasks in the
foreign affiliates in the East may still be rather limited. The defining
features of TNCs include their ability to shop around in their locations
for differences in production or indeed in all factors, and hence they
will tend to allocate different tasks to different locations according to
the advantages of those locations. The life-cycle theory of Hirsch (1965,
1967) puts this idea into a timeline, suggesting that each location has
an advantage according to the life-cycle stage of the product or industry.
Additionally, this pattern of strategic allocation of tasks between
different locations by the foreign investor may be a result of different

strengths of intellectual property rights regimes. Whatever the domi-
nant reason, all this suggests that the conditions for technology transfer
do not become much more homogeneous even if analysed in narrowly
defined industries.
Furthermore, this analysis does not envisage the development of a
formal model, due to the problems associated with the heterogeneity
issue. Rather, this analysis attempts to identify conditions necessary for
the process of technological catching up via inward FDI. Those could
then feed into a dynamic theory of economic development via inward
FDI (without being able to provide a complete, sufficient list). The
research objective is to derive from theoretical literature assumptions
on what determinants can be expected to increase the extent of tech-
nology transfer and spillovers, and to develop and test hypotheses on
firm-specific, country/location-specific, and sector-specific conditions of
such determinants for the particular case of CEECs. Such a method not
only generates new knowledge about specific conditions of (determinants
assumed to give rise to) intense technology transfer and spillovers in this
region, but, moreover, the assessment of the situation within coun-
tries, regions, or industrial sectors allows the estimation of potentials to
benefit from technology transfer and spillovers via inward FDI. Finally,
some of these conditions may lend themselves as instruments for active
technology transfer policy.
Examples of firm-specific conditions include: internationalisation of
R&D and innovation; strategic investment motives; its own technolog-
ical activity of affiliates; absorptive capacities or capabilities of affiliates;
corporate governance between investor and affiliate; and integration
and embeddedness within the local host economy (see Cantwell’s
internal networks). Examples of host region-specific conditions include
the size of demand and the market in general; agglomeration advan-
tages such as the infrastructure and clusters; the availability of qualified
personnel; capabilities of all actors in the national/regional/sectoral
innovation systems such as supplier and consumer industries, competi-
tors, user industries, other networking partners, public and private
research organisations, local and regional public administration, and
policy-makers (see Cantwell’s external networks); institutional frame-
work conditions such as the rule of law, IPR regime, competition law
and policy; and technology transfer policy such as innovation systems
and policies, local content rules, etc.
In positive methodological terms, the central hypothesis guiding
the research is that the prospects for the catching-up development of
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Hedda was quite frankly snoring in the rocker, back in the gloom, but
Gabrielle obediently roused herself from deep study, and kissed
Margret, and retraced her way up through the cold halls. Her room
looked tumbled and was cold; she opened the window. Still night,
night, night, black and cold and unbroken—there was no end to this
winter night! But Gabrielle was young and cruelly wearied in mind
and body, and after three minutes in the cool sheets a heavenly
warmth began to envelop her, and she fell deeply asleep.
CHAPTER XI
Winter sunlight was slanting into the room when she awakened,
and for a while she lay still, trying to reconcile these beams from the
southwest with any possible hour on a January morning. Her watch
had stopped at half-past three. Or had it stopped?
She sat up, bewildered, the ticking watch at her ear. Sunshine from
the southwest, and her watch briskly ticking at half-past three!
“It can’t be!” Gabrielle said aloud, beginning heavily the business of
dressing. “Why, where are they all?” she murmured, gradually fitting
together in her mind the events of the past night. “Why didn’t
someone——”
Flooding sunlight and cold pure air from the southwest! The day
seemed turned around as, fifteen minutes later, she went slowly
downstairs. Nobody anywhere—sitting room, dining room, halls,
pantry; but Hedda and Margret were quietly talking over some busy
chopping and peeling in the spotless kitchen, and Margret started a
wood fire in the dining-room stove, and Hedda brought Gabrielle a
delicious breakfast luncheon and placed it on a small table near the
blaze.
Gabrielle was there alone, thoughtful over her meal, when David
came cheerfully in. He looked just his pleasant self as he sat down,
his dark hair a little tumbled, and his old corduroy jacket spotted
about the cuffs with paint, but Gabrielle thought he gave her an
unusually sharp keen look, and felt tears prick behind her eyes as
she smiled in answer.
“Well,” he said, “you got some sleep!”
“Eleven hours,” said Gay.
“I’m glad. You looked all in last night. And Margret said you came
down to the kitchen, late as it was, and talked things over——”
“For an hour.” Gay pushed away her table, almost untouched.
“Feel like a walk?”
“Oh, no, thank you, David.” She smiled gratefully, but he heard the
sharp sigh that followed the words. “I feel—broken,” she said, with
suddenly wet eyes.
“I don’t blame you,” he answered, gently. “But you mustn’t take all
this too hard, Gay. There’s nothing—disgraceful about it, after all.
Your mother had typhoid fever, and it left her—like this. She doesn’t
suffer—indeed, poor Aunt Flora suffers much, much more than she
does! Aunt Flora’s just been telling me that Aunt Lily is usually
perfectly serene and happy, wanders in the garden, loves the flowers
——”
Balm was creeping into the girl’s heart with every word he said, and
David saw, with a deep relief in his heart, that he was making an
impression.
“Finish your chocolate,” he pleaded. And smiling over the brink of her
cup with wearied eyes, Gay obediently picked it up and drank it to
the dregs.
“It seems that Aunt Lily has been restless since you came home,”
David added. “They never really know how much she understands or
how she learns things. But she knew that you were here and she has
been wild to see you. Being winter, she had been indoors most of the
time, and since Christmas, Aunt Flora says, she has been unusually
restless. That’s really the whole explanation—and that isn’t so
terrible, is it?” he finished, with a smile.
Gabrielle looked at him soberly.
“I would like to see her again,” she said, slowly.
“Well, by all means!” he answered, cheerfully. “I hear from Margret
that she seems to have a heavy cold and she’s in bed. But you can
go up there—talk to her——”
“My mother, David——” the girl faltered. And the eyes she turned
from his were brimming again. “It’s so different—from what most girls
think—when they say ‘Mother!’” she managed to say.
“I know,” David said, quickly, with infinite pity in his voice, “I know,
Gay. It’s very hard, dear.”
“What I realize now,” Gay began again, after a brief silence, and in a
voice she resolutely held steady, “what has come to me—suddenly!
—is that my name really is Fleming, that there was never any
marriage at all—between my mother and Charpentier.”
It was quite true that the thought had come to her suddenly, for at the
actual commencement of the sentence she had had no distinct
suspicion in the matter. Forlornly, she had been instinctively
searching for some phrase that should win David’s sympathy, that
should help him to realize how lonely and sad she felt.
But now the vague sorrow in her heart, the indefinable weight upon
her spirit, seemed to crystallize into these words, and almost
frightened of herself when she had said them, she ended on a note
of interrogation, and turned toward David for his denial.
There was a revulsion almost nauseating in its violence upon her
when David only looked at her with infinite pity and concern, and
asked:
“Gay, my dear, dear Gay, why do you say that?”
“Oh, my God, my God, my God!” Gay exclaimed, suffocating. And
she got to her feet and walked to the embrasure of the big eastern
bay window, where she stood staring blindly out at the paths white
with shabby snow and the trees’ bare wet branches twinkling in the
sunlight. A passionate childish wish that she had never voiced this
horrible thought and so made it concrete in his consciousness and
hers shook her from head to foot. It was said—it was said—and now
they must say more!
The fire in the stove had burned itself out; a chill was beginning to
pervade the gloomy great spaces of the dining room. The ugliest
hour of a cold, glaring winter afternoon lay upon the bare garden;
through the denuded shrubs they could see the steely ripple of the
sea.
“You see that explains it all, David,” Gay said, hurriedly and briefly.
“Aunt Flora’s anger against my mother, and her anxiety to keep the
knowledge of her marriage from everyone. There was no marriage
——”
“That is a thing you could easily find out, Gay,” David reminded her,
watching her anxiously.
“Could find out?” There was a glint of hope in her voice, and in the
heavy, beautiful eyes she raised to his. “Do you mean that you don’t
know?”
“I think of course your mother was married!” David said, stoutly. “But
how can I convince you? I never gave it a moment’s thought before.
Or if I did,” he added, conscientiously, remembering vaguely some
talk before the fire with Aunt Flora, on the day that Gay had come
home last fall, “I must have been entirely reassured, for I never
understand that there was anything irregular about it at all.”
“I can ask,” Gay mused, sombrely.
“I would ask, if I were you!” David answered, with a quick nod. “Only
remembering,” he added, “that if it should be what you fear, it does
not really touch you, Gay. You are not yet nineteen, and you are sure
to win friends, and your own place, and create your own life and your
own happiness, in these years that are ahead. Don’t feel anything
but pity, if this should be the case.”
She glanced at him gravely over her shoulder. Then he saw the
blood creep up under her clear, warmly colourless skin.
“I would like to have something—one thing!—in my life,” she said,
slowly, “of which I might be proud!”
David watched her as she walked slowly, and with her head held
high in a sort of weary dignity, from the room.
Flora, before the sitting-room fire later, told him that the girl had been
upstairs with poor Lily, who was in the drowsy state that followed
fatigue and the rather strong astringent medicine that Margret had
given her for a heavy cold. Gabrielle had sat beside her mother’s
fire, peacefully reading, Flora reported. Flora herself seemed oddly
relieved and at ease about the matter.
Gabrielle came into the room just before dinner, with her eyes still
clouded and heavy, but wearing the prettiest of her plain black
uniforms, with the white collar and cuffs that enhanced the delicate
beauty of her wrists and throat. She seemed composed but
subdued, and was so extraordinarily lovely, sitting silent in her chair
after dinner, raising her long curved lashes to look seriously at
whoever addressed her, that David thought that if anything could
make Gay more beautiful than before, this touch of tragedy and
sorrow had done so. To-night she seemed to have no heart for
cards, and David dared not suggest them; once, when Aunt Flora
had left the room, she told him in a hurried phrase, and with the hot
colour burning in her cheeks, that at the first opportunity she meant
to question her aunt and clear up the whole matter.
“I think you’re wise!” David said, warmly. “And meanwhile, would it
do any good to have me stay at Wastewater? Are you in the least
nervous about being left here?”
“Left here? With Margret and Daisy and Sarah and Hedda and Trude
and Aunt Flora?” she queried, looking up with the shadow of a sad
smile. “My dear David,” she added, as if half to herself, staring back
at the fire again, “what I have to fear is nothing from which you can
save me!”
“Sad times come into every life, Gay,” the man said, trying to comfort
her. “I remember,” he blundered on, “I remember the day Tom and I
were brought home from school—when our mother died. That was
before you were born, or Sylvia was born. Aunt Flora wasn’t even
married, if I remember rightly—no, of course she wasn’t. For she
was engaged to Uncle Roger after that——”
“Ah, losing your mother is different!” Gay said, in a voice of pain. “But
with me, Davy, it would be better if I had lost her. If I had never had
her!”
Nothing more was said until Aunt Flora returned, and then David felt
a thrill of genuine admiration for the girl who could forget her own
heartache to watch the elderly woman’s card game, prompting her,
correcting her, discussing plays. Watching them both, he told himself
that he would remain at Wastewater, whatever the inconvenience to
himself, at least until he could make sure that Gabrielle had settled
the wretchedly upsetting question of her own legitimacy.
But the next day was bright, and the sunshine almost warm. Gay
seemed over the stormiest pain of her new shock and new
suspicions, and David saw that she did not intend to hurry any
further investigations. Moreover, his closest friend and associate, the
lazy, happy-go-lucky Jim Rucker, in whose city studio David
occasionally set up an easel, wired him distressedly concerning a
question of some frames. Billings wanted to know if the snowscapes
were to have the same frames as the picture called “White’s Barn,
Keyport.” And if those three pictures came back from the Washington
Exhibition, where did David want them left?
David was needed. He departed, carrying the comforting last
memory of Gay, gloved and muffled, walking briskly in the winter
garden, and promising him that if there were any really sensational
weather developments in the next few weeks, she would send him
word.
“If there’s a blizzard,” she promised, with almost her old smile, “you
shall come back and paint it. Or one of those ice storms that coat all
the branches with glass! And be sure to let me know if the ‘notes’—
those little scrappy sketches I love so—sell, and which ones.”
“Lord, she is beautiful. Beautiful,” David said aloud, in the taxi. “I
guess she’ll be sensible. She’s all right now!”
He did not know that she watched him out of sight with a heart like
lead. With him the winter sunlight seemed to go, too, leaving only
gray skies, gray sea, bare trees and frozen earth, leaving only
shadows and damp odours of plaster and dust and kerosene in
Wastewater’s big walls, leaving loneliness and fear and shame to
Gabrielle.
Almost three weeks later she wrote him. David saw the Crowchester
postmark and instantly knew whose pretty, square handwriting that
must be. She wrote closely, evenly, yet there were a dash and a
finish about the blocked letters that gave the sheet the effect of a
rather unusual copper-plate engraving:
I had a long talk with Aunt Flora about ten days ago. And
she told me the truth. It was what I suspected. There was
never a marriage, and that was what broke her heart, and
incidentally my poor mother’s heart. The disgrace of it,
and the fever, coming all at once, were too much for her
soul and mind, and can you wonder? I think I had braced
myself to hear it, David, and expected it, and I am trying to
meet it as well as I can, trying to work hard, and to keep
busy, and to believe that it is only fair that I should pay for
what was not my fault. That is the reason, of course—I
mean the fact that it was all secret and wrong—that Uncle
Roger never made any search for Charpentier, my father.
My mother had no claim on him.
Aunt Flora was kindness itself about all this, and I think
she feels bitterly sorry for me. She talked to me so kindly
about Sylvia and herself always wanting me here, and
indeed I could hardly be anywhere else now, for my
mother has been pretty sick, and likes to have me about
her. It seems that she fears any doctor we call in may be
from one of those sanitariums she so hates, so we have
not called one. She lies very peaceful and still, and, oddly
enough, likes best to have me play and sing to her. One
kind thing that Aunt Flora did was to have the old square
piano upon which Sylvia and I used to practise years ago,
brought up to my mother’s room, and often we spend our
evenings there now.
And the letter went on, in a composed and courageous tone that
David found astonishing in any girl so young:
While she lives, which will not be long, for she seems
more like eighty than fifty now, and is so frail we hardly
know whether she will ever get up again—while she lives I
must stay here, since Sylvia and Aunt Flora will let me,
whether my pride likes it or not, of course. Afterward, I
look to work—[she had underscored it twice]—any sort of
work, to help me get my balance back, to help me feel that
life is just in the long run, and that there is good
somewhere under all this.
David read the thin sheets more than once, and mused far more
steadily than he realized upon the situation of the lovely and loving
young creature to whom life had been so strangely harsh. There was
not, truly, as she had said, one thing of which she might be proud.
Her father was nothing to her, her mother was poor little weak-
minded Aunt Lily, the bread she ate, the roof that covered her, were
Sylvia’s. Nameless, penniless, at eighteen she faced the world with
bare hands.
One day he stopped at a fancier’s, in the East Thirties, and sent up
to Wastewater a coffee-coloured airedale, seven weeks old. The
creature had somewhat the shape and feeling of a little muff, but was
stocky, warm, and wriggling, with a little eager red tongue coming
and going, and an entreating whine for whosoever stopped to finger
his soft little head. If Aunt Flora objected, David scribbled on his
card, Gay was to ask John please to keep Benbay, who was alas
somewhat lacking in points, but whose father was Champion Benbay
Westclox II, until David could take him away.
David, however, hoped that Aunt Flora would not object to Benbay.
His lack of “points” would not prevent the woolly little affectionate
creature from being a real companion and comfort to the lonely girl
at Wastewater. Studying, practising, brooding, walking alone in the
snow, eating meals alone with Aunt Flora in the dreary dining room,
singing her little songs to her forlorn and dying mother in the winter
evenings—David would shut his eyes and shake his head at the
mere thought of such a life for such a girl!
His exhibition was early in April, and was followed by another in
Chicago, where he would show pictures, and must be, if possible.
David planned to go to Wastewater immediately afterward and
establish himself there for the summer. Sylvia would be coming
home in June, and there would be all sorts of questions to settle.
Sylvia would have plans—she brimmed with plans. And of late
David, musing over the problem of Gay and her youth and her
beauty and her future, had been entertaining a new plan of his own.
It had come to him suddenly, this thought of a new solution for Gay,
and it had a strangely thrilling and heart-warming quality about it, for
all its undoubted whimsicality and unexpectedness. David had first
found himself thinking of it on the day when he and Jim Rucker were
bound for Chicago. David had been thinking idly, in his comfortable
big Pullman chair, and staring through the wide window at a
landscape that, although still bleak and bare, was already so
different from what it had been even a few weeks before.
Clouds so heavily packed then were flying wildly now across a sky
that seemed nearer, more accessible. Trees, leafless, yet had a
faintly moist and expectant air, as they whipped madly about. There
were thawing, and the taste of rain, and a great softening in the air;
there was ploughing under way, and children’s coats and winter hats
were already shabby and ready to be shed. Shadows lay longer, and
daylight lingered in the car almost until the dinner hour. David
watched school children stamping and running by the big roadside
pools that were ruffled by the wind; he saw mired cars in the muddy
roads that were hard as steel a few weeks before, and except on the
northeastern sides of fences and barns there was no more snow.
He was thinking of Gay, in a desultory fashion that had been
customary of late, just of Gay at Wastewater, coming and going in
her plain frocks, with her beautiful hand set off by the thin lawn cuff,
and her beautiful creamy throat rising from the broad, transparent
organdy collar, with that husky sweetness in her voice, and the
fashion of raising her up-curled lashes to look at him. Gay, opening
doors, walking by the sea——
And suddenly, full-grown in his mind, was the idea of marrying Gay.
He did not know whence it had come; it seemed complete, it was
finished to the last detail.
David was oddly shaken by this extraordinary inspiration. He did not
think of it as an idea: it was an obsession. Once in his mind, he could
think of nothing else, nor did he wish to think of anything else. Under
his desultory rambling conversations with Jim Rucker, during their
dinner, and while he was trying to read afterward, the insidious
sweetness of this astonishing vision persisted. David abandoned
himself to it over and over, as he might have done to some subtle
and dream-provoking drug.
He always imagined his homecoming to Wastewater, to find Gay in
the sitting room, sitting alone by the fire. He would come in to her,
and she would raise to his those beautiful, serious eyes, and he
would hear that husky, sweet voice in greeting. Sometimes the mere
pleasure of this much so intrigued David that he was obliged to go
back to the beginning and picture it all over again: the upstairs sitting
room, the drowsy coal fire in the steel-rodded grate; Uncle Roger’s
smiling picture, with the favourite horse and the greyhound, looking
down from above the mantel.
Then they would talk a little about her mother and Aunt Flora and
Sylvia, and then David would say unexpectedly: “I’ve thought of a
wonderful solution for you and all your troubles, dear old Gay. I want
you to marry me.” And when David reached this point in his dream,
he had to stop short. An odd, happy sort of suffocation would
envelop him, something that had nothing to do with love, but that
seemed sheer emotion, by a realization of the poignant dramatic
beauty of the scene.
To be sure, David had said almost these very words to Sylvia only a
few months before. But strangely, strangely!—they had not seemed
to have anything in common with the same phrases when addressed
to Gay. In the first place, for ten years he had been steadily and
admiringly moving toward the day of his marriage to Sylvia. He had
administered her fortune with that in view, and being at this moment
under a flexible sort of promise to marry Sylvia, an “understanding”
that was to be made more definite presently, only if she so decreed,
he had given some concerned thought a few months before to his
future status as the husband of a rich young wife, as a money-
hating, society-hating, display-hating painter married to a girl of
twenty-one who might quite naturally be expected to enjoy her
money and the social advantages it would give her.
David even now thought of himself as loving Sylvia and of being the
proper mate for her. But Sylvia did not love him, or if she did, she
also loved the thought of her independence, of travel with her
mother. They had always thought they loved each other, and, there
being no change now in his feeling toward her, David quite honestly
believed that he loved her still.
But part of his plan for Gay included an explanation to Sylvia of the
complications of the situation. Oddly enough, David did not dwell, in
his thoughts, upon this explanation. There was no thrill in imagining
that. He thought of it hurriedly; Sylvia beautiful and understanding, of
course; Sylvia saying, “Why, certainly, David. It does solve
everything for poor little Gay, and is much the wisest arrangement all
round!”
That would be gotten through as briefly as possible; probably by
letter, or perhaps David could see her for a moment at college. And
immediately this was over, he would be free for that strangely thrilling
scene with Gay—a scene of which he did not think as connected
with love-making in any way. He had “loved” Sylvia for years, and
there was none of that feeling here. No, this was just an inspired
solution of poor little Gay’s affairs.
For however wise and charming, she was not the type of girl who
battles, or who wishes to battle, successfully with the world. She was
alone, poor, nameless, and beautiful, and David shuddered as he
thought what life might add to her present load of troubles and
wrongs.
On the other hand, it would be excruciating to her to live along
indefinitely at Wastewater. She would be dependent upon Sylvia,
she would have no real place in the family, and on every side would
be constant reminders of her mother’s unhappy life and of her own
illegitimacy.
But—married to him, established in the sunshiny little farmhouse in
Keyport where he kept a sort of studio—Mrs. David Fleming——!
“What a wonderful thing marriage is!” David thought, shutting the
book he could not read and lapsing contentedly into his golden
dream again. He pictured Gay as his happy, simple, busy young
wife, pictured them breakfasting on the shabby little east porch of the
Keyport house on some summer morning when the peaceful ocean
swelled and shone like a stretch of blue Chinese silk. “What a
wonderful thing it is to take a woman right out of her own house like
that!” David said, with a strange plunging at his heart. “I don’t know
that I ever realized just what an extraordinary thing it is, before!”
He began to imagine himself as introducing her to the simple
household arrangements there: the little wood stove, the saucepans
in which he and Rucker had sometimes scrambled eggs, the odd
sketches and “notes” on the walls, the whole slipshod, comfortable
little bachelor establishment. And his heart sang at the thought.
He was only Uncle Roger’s stepson, whose income was something
like four thousand a year. Gay was—nothing. What they did, where
they went, how they spent the little money they had, would be
nobody’s business. They would go to Spain, if a few pictures sold at
some sale, next year, or the year after—and if they had a child some
day, David added in his thoughts, with a little unconscious squaring
of his shoulders, and a grin, they would take him with them—drag
him along and toughen him, and let Aunt Flora and Sylvia say what
they would!
The relief of not having to think of Wastewater, Aunt Flora, and—and,
yes, of Sylvia, too, made him feel a sort of shamed joy. In that
arrangement he would always have been self-conscious, fighting
against nameless and subtle and cramping opposition for his identity
and his freedom. If he wanted a studio in Wastewater, he knew just
how Sylvia would cushion it and beautify it. If he wanted old Rucker
to come up and paint for a while, he knew just how Aunt Flora,
abetted by Sylvia, would ask innocently: “How long will Mr. Rucker
be with us, David?” He knew—because he had indeed experienced
it, when rendering her accounts—exactly how conscientiously and
incessantly Sylvia would discuss money matters with him.
“If you are in that neighbourhood, David,” he could imagine her
saying pleasantly, “do get those bonds from Crocker and put them in
the safety-deposit boxes. I do think it was just a little irregular to
leave them there since they aren’t needed.” And, “Will you go over
that once again, David? You say they are reorganizing the company
and want me to accept these securities for the old—I don’t
understand.”
“You only have to sign that certificate, dear; all the other
stockholders in the old company are doing it,” he imagined himself
responding, for the tenth time.
“Yes, but David, suppose this is so much worthless paper?” Sylvia
would ask, intelligently. And Aunt Flora would nod in grave approval
and admiration. No cheating Sylvia! “I don’t believe in scribbling my
signature anywhere and everywhere,” Sylvia would go on,
reinforced. “Please let’s go over it again and again, until it’s all quite
clear!”
But with Gay, how simple and easy it would all be! Just their own
happy daily plans to discuss, and their own microscopic income to
administer. They would go up to Wastewater for Sunday dinner with
Sylvia and Aunt Flora, and Gay would really be a Fleming then, and
all her old unhappiness forgotten. Who would know—or care!—that
beautiful young Mrs. David Fleming had been born outside of Mrs.
Grundy’s garden walls? Gay would come in to her husband’s
exhibitions, wearing that little velvet gown, or another like it, so vitally
eager, so interested, so familiar with every stroke of the brush——
And at this point in his musing David would go back to the beginning
again, and think of Wastewater in an April twilight, a week or two
from now, and himself arriving there, to find Gay dreaming alone
before the fire in the upstairs sitting room. She would raise those
star-sapphire eyes and give him that radiant smile, and they would
talk about Aunt Lily, and Aunt Flora, and Sylvia, and then he would
say suddenly:
“I’ve thought out a real plan for you, Gay! It involves my having a talk
with Sylvia, and it involves a little green-and-white farmhouse and
barn in Keyport, for which I pay a hundred dollars rent a year, and a
plain gold ring——!”
How bewildered she would look; he could see that faintly smiling,
maternally indulgent look——!
His dream took complete possession of David, and made everything
he did and said in these days seem unreal. The exhibition was
under-run by a strong current of it: “It involves you and me, Gay, and
my having a talk with Sylvia,” David was saying to himself over and
over, and the sale of a picture only made him think suddenly that he
would like to give her a little present. Oh, and he had his mother’s
beautiful old-fashioned diamond engagement ring, and also some
almost valueless but pretty topazes that had been hers, a ring and
earrings and a chain, and an oval onyx pin with a pearl in it. These
would be charming with Gay’s warm golden colouring—especially if
she wore those plain little velvet frocks——
Life took on quite a new meaning for David, and he said to himself
that it must be because he was moving in this matter with Gay’s
safety and comfort and future rather than his own predominant in his
mind, that this odd fluttering happiness, this poignant interest in the
tiniest things in his day—because oddly they all seemed connected
with his dream—this new delightful sense of values in anything and
everything, had come to him.
Spring was always late at Wastewater, but spring was surely here,
he thought, when he reached the old place late in an afternoon early
in May.
He had hoped to get to Wastewater in the middle of, or at least by
the third week in April, but upon returning to New York he found
business matters of Sylvia’s there which could not wait. It was with a
grim little twitch in the corner of his mouth that David devoted himself
to them. Sylvia would pay her next administrator; and it would not be
her affectionate cousin David!
Now he would not get to Wastewater until May, and the twenty-third
of April was Gay’s birthday! David felt quite disproportionately
provoked by the delay. Poor little Gay, she would not have much fun
on her nineteenth anniversary. And because it seemed so newly and
delightfully his business to think of Gay’s pleasure now before his
own, he sent her a birthday letter.
David wrote, with something less than the truth:
I’ve been thinking a lot about you, and hoping that,
between us all this summer, we can lighten that sad heart
of yours. Or no, I won’t say “us,” for I hope to do
something toward it all by myself. I’ve got a most attractive
plan to propose to you, and you must make up your mind
to agree to it. I’m writing Sylvia about it, for she comes into
it a little—but not much. It is almost entirely dependent
upon you, and somewhat upon yours ever faithfully and
affectionately,
David.
She would get nothing from that, David assured himself as he mailed
the letter. Having done so he tried to think just why the thrilling
excitement that possessed him had seemed to exact that he relieve
his overcharged emotions with just so much of a hint. It would only
puzzle her——
CHAPTER XII
Gabrielle, however, was more affronted than puzzled by it. It made
her definitely uneasy. She suspected at once what was in his mind,
and in the utter despair that engulfed her she felt that this would be
the crowning trial, the crowning indignity, in a life that was filled with
both.
The days since her discovery regarding her mother had seemed
endless to her. They were the cold dark days that follow the coming
in of the new year, there was nothing of the holidays’ snap and
exhilaration about them. Rain, clouds, winds, heavy snows, rushing
storms had thundered and banged about Wastewater; Gay felt that
every out-of-door garment she had was twisted and soaked and half
dried; she was sick with loneliness and discouragement.
In vain she made herself practise, made herself walk and study.
There was no life in it; everything she did come up against a blank
wall, a dreary “What’s the use?” What was the use of living, to find
that so much that was weak and stupid and wrong was blended into
one’s blood?
If there had been a sweet, interested mother to put her arm about
one, or a big father to advise and adore, if there had been normal
friendships, neighbours, all the cheerful life of the average American
girl—ah, that would have been so different! But Gabrielle was alone,
yet curiously imprisoned in this dreary old silent place, tied to the
poor little invalid who rarely identified her, and to dismal, quiet Aunt
Flora, and to all the ghosts and echoes of Wastewater.
Tied, too, to an unceasing contemplation of Sylvia’s perfections,
Sylvia’s good fortune, Sylvia’s charms. Sylvia would be home in June
as the daughter of the house, and the heiress; already some
papering and painting was being done in preparation for her return;
she herself had selected papers and hangings in Boston weeks ago.
Gabrielle had borne bravely the initial shock of discovering her
mother but she weakened as the slow, cold weeks went by, let her
music go, neglected her books, wept and brooded a great deal.
David’s birthday letter brought the first smile of many days to her
face, and she opened it with the old brightness he always brought to
her shining in her eyes.
The cryptic phrases made her bite her lip thoughtfully; look off into
space for a little while. And presently she went for a lonely walk by
the sea, and half-a-mile away from the house, seated upon a rock
above the ebbing teeth of the cold tide, she read the letter again.
Then she tore it to scraps and buried it under a stone. Her cheeks
blazed with colour and a nervous hammering commenced in her
heart. He could not mean—but he could not mean that he meant to
ask her to marry him?
This would be preposterous; it certainly was not that. Yet as
Gabrielle remembered the phrases of the short letter the horrible
conviction came to her that her suspicion was justified. He was
engaged to Sylvia, or at least there was between them an
understanding more or less definite; that was what he meant by
Sylvia’s part, Sylvia’s “coming into it a little.” And the rest was
between him and Gabrielle.
Oh, he could not intend to hurt her so terribly, to add this insufferably
humiliating thing to all that she was enduring now!
“I don’t believe it!” Gabrielle said aloud to the gulls and the sea.
“David wouldn’t do it. It wouldn’t be honest, and he would know how
mortally—how mortally hurt I would be!”
But the uncomfortable fear persisted. David always entered into
Sylvia’s and Aunt Flora’s plans with all the affectionate interest of a
devoted son. He knew they were troubled about Gay. He would step
into the breach and solve the Gay problem once and for all.
“Oh, my God, I cannot bear it, if he begins to say something like that
to me!” Gay said, passionately, getting to her feet and beginning to
walk along the rough shore blindly, hardly conscious of what she was
doing. “How cruel—how cruel they are! They don’t know, you see,”
she added, to herself, more quietly. “They don’t know how hard it is!
Aunt Flora will think it over and decide that David would be a most
wonderful match for me——”
Her heart began to beat fast again, and her face burned.
“If he comes here next week,” she said, hurriedly and feverishly, “I
will not be here! Where can I go? I won’t—I can’t have him tell me
about it, that Sylvia thinks it wise, and Aunt Flora thinks it wise. No,
my dear David,” Gay said, stumbling on, and crying bitterly as she
went, “you are the one man in the world who cannot solve my
problems by marrying me! You would do it, to have them happy, and
to make me happy, but that would be more than I can bear! I’ve
borne a great deal—I wish I had never been born!” And blinded by
tears, she sat down upon a rock, and buried her head in her arms,
and sobbed aloud.
But when she got home she was quite herself again, and had the
puppy in the sitting room before dinner, playing with him charmingly
in her low chair; standing him up on his indeterminate little hind legs,
in a dancing position, doubling him up with little bites and woofs of
affection, to which the struggling puppy made little woofing and biting
replies.
Gabrielle had by this time quite convinced herself that it was idiotic to
suspect sensible David of anything so fantastic as disposing of
Sylvia, whom he so heartily admired, and offering himself to her,
whom he had not seen for twelve long weeks. She put the suspicion
resolutely from her.
Aunt Flora had softened so much to Ben, as the puppy was called,
that he was a regular third in the evening group, and had even been
up to Lily’s room. Flora often pretended that Ben could not be
comfortable curled up in a ball in an armchair and sound asleep, and
would drag him into her lap with an impatient “Here, if you won’t be
quiet anywhere else!” To-night Gay forestalled this by surrendering
him to Aunt Flora as soon as dinner was over. Neither played cards
to-night, Flora thoughtfully pulled the little dog’s soft ears, Gabrielle
sat opposite, with Emerson’s Essays open in her lap.
“Poor Lily isn’t going to last much longer, Gabrielle,” Flora said,
presently, with a sigh. The relief of sharing her secret had quite
visibly softened Flora, and she often discussed Gay’s mother with
the girl as with a confidante and an equal. “I think we must have a
doctor, now. I know, of course, what he will say; she had constant
care from a doctor while she was at Crosswicks. But, afterward, it is
as well to have had some advice.”
Gabrielle, listening soberly, nodded with a sigh. She could not
pretend to grieve. More, she could not pretend that it would not be a
great lightening of her load when that frail little babbling personality
was no more. She thirsted to get away from Wastewater, away from
ghosts and shadows and echoes, into the world again! Away from
David, with his kind eyes and his interested smile, away from Sylvia,
who was so cruelly armed at all points with beauty and intelligence,
with friends and money and position and power!
Presently Flora spoke of Sylvia; David would be home in a few days
now, and Sylvia in less than five weeks. It would be so wonderful to
have Sylvia home for always.
“Do you know, Gabrielle,” said Flora, jerking her yarn composedly
over Ben’s little sleeping head, “I would not be intensely surprised if
nothing came of the understanding between David and Sylvia. From
something she wrote me, I rather suspect that there is somebody
—— No, I can’t say that. Perhaps it is only that she does not want to
think of anything so serious so soon. She’s not yet twenty-one, after
all. But she wrote me as if she might be thinking it wiser for David
——”
Gabrielle heard no more. Her throat constricted again, and her
hands grew cold. All the fears of the afternoon returned in full force.
But surely—surely they couldn’t all be so simple as to think that she
would placidly and gratefully accept this solution of her problem, her
poverty, her namelessness, her superfluousness!
David would not, anyway, she told herself a hundred times in the
days to come. David was understanding, David was everything that
was kind and good. He would help her find her independence, he
would always be her friend, and Gay knew, in her own secret heart,

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The Technological Role of Inward

Foreign Direct Investment in Central

The Globalization of Foreign Investment in Africa The

Global Regulation of Foreign Direct Investment 1st

Foreign Direct Investment in Developing Countries A

China Trade Foreign Direct Investment and Development

Foreign Direct Investment in Brazil Post Crisis

Multinationals As Mutual Invaders Intra Industry Direct

Globalizing Innovation State Institutions and Foreign

Foreign Direct Investment in the Successor States of

William Bartlett, Sanja Malekovic and Vassilis Monastiriotis (editors)

Tilman Bruk and Hartmut Lehmann (editors)

Bruno Dallago (editor)

Bruno Dallago and Ichiro Iwasaki (editors)

Saul Estrin, Grzegorz W. Kolodko and Milica Uvalic (editors)

Iraj Hoshi, Paul J.J. Welfens and Anna Wziatek-Kubiak (editors)

Mihaela Keleman and Monika Kostera (editors)

David Lane (editor)

Enrico Marelli and Marcello Signorelli (editors)

Stanislav Poloucek (editor)

Hans van Zon

The full list of titles available is on the website:

Studies in Economic Transition

List of Tables vii

4.4 Characterisation of foreign affiliates in CEE within

6 Foreign Affiliates as Knowledge Source for Host Regional

7 The Role of Intellectual Property Rights for Technology in

8 Conclusions on the Technological Role of FDI into CEE 215

2.1 Country composition of the IWH FDI Micro Database,

7.1 Pairwise rank correlation between all determinants 194

1.1 FDI inﬂow, in % of World FDI inﬂows 24

5.9 Average levels of autonomy in three technology-related

CATI computer assisted telephone interviews

1.1 Motivation of the topic

When the ‘historical experiment’ of central state planning collapsed

out individual entrepreneurial behaviour (because it was not regarded as

● Alleviating capital shortage: even if doubtful in the medium term

● Competition: central planning consistently excluded and necessarily

Those four points can be directly deducted from the dichotomy in

souring the break-up of Czechoslovakia, the despotized political regime

This analysis cannot, of course, answer that ambiguous question to a

1.2 Setting the research agenda: the technological

This overarching question forms part of a wider research agenda on the

● The ‘Washington consensus’ enthusiasm is shared mostly by multi-

● Inward FDI increases employment opportunities for local workers,

host location. Whilst foreign investment projects tend to pay higher

competing for market shares results in low intensities of competition.

● In addition to technology transfer and spillovers, FDI affiliates may

● First, a substantial share of foreign-owned economic activity in large,

entrepreneurship and thereby inhibit the development of small-scale

It is obvious that such a discussion about the extent of beneficial and

transfer and spillovers as the source of the developmental role via

of FDI for the ‘technological’ dimension of the development process

1.3 Conceptual framework for the analysis

1.3.1 Technological development in economic theories

development of individual sectors (for an application of this on the

1.3.2 The issue of heterogeneity

high-tech sectors sometimes remain even less technologically active