European Integration and German FDI: Implications for Domestic Investment and Central European Economies

Since the mid-1980s foreign direct investment (FDI) outflows from Germany have increased considerably. Germany ranks after the US, UK and Japan as the fourth-most important global investor. The most rapid expansion of German FDI in the eighties occurred in the EU; now it is happening in Central Europe (Czech Republic, Hungary, Poland, Slovakia and Slovenia). The question arises whether economic integration is a major stimulant of German FDI. The Single Market programme was introduced in the EU in the eighties and it increased the degree of integration of the markets of member countries. This was particularly important for the service industries which had hitherto been heavily protected from foreign competition. Now the economic integration of the Central European countries with the EU is likely. They have already applied for EU membership. It is not clear when this will take place but during the interim phase, some of the advantages of economic integration (free trade, capital movement, economic aid) are available through ‘Europe Agreements’ between the EU and Central European countries (Langhammer 1992), and through CEFTA among the latter.