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Foreign Direct Investment in the Czech Republic: A Visegrád Comparison

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  • Septimiu Szabo

Abstract

This brief provides an analysis of foreign direct investment (FDI) in the Czech Republic since the 1990s, looking at its evolution over time and its distribution across regions and economic sectors. As the ratio of the FDI stock to GDP has grown six-fold since 1993, FDI has become a major contributor to the country's development. Encouraged by record-high rates of profitability, many foreign investors have directed their businesses towards the Czech Republic, especially to Prague. The largest sources of FDI are the Netherlands and Germany, and the main sectors are financial services, wholesale and retail, and motor vehicle manufacturing. As many investments reached maturity in the late 2000s, many foreign-controlled companies started to distribute a significant amount of dividends to their parent enterprises abroad. This outflow of dividends has particularly increased since the financial crisis, leading to an increasing GDP-GNI gap and a reduction in FDI inflows on the back of a low level of new capital acquisition. Nonetheless, even though a high proportion of profits have been repatriated, FDI has made a significant contribution to the domestic economy. The overall combination of new greenfield and brownfield investment, employment creation, taxes and social contributions, fiscal revenues, and domestic spillovers has had a much larger impact. Going forward, Czech authorities should encourage foreign investors to reinvest more of their earnings in the country by ensuring a viable business environment and a stable macroeconomic and political climate.

Suggested Citation

  • Septimiu Szabo, 2019. "Foreign Direct Investment in the Czech Republic: A Visegrád Comparison," European Economy - Economic Briefs 042, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    • Handle: RePEc:euf:ecobri:042
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    File URL: https://economy-finance.ec.europa.eu/publications/foreign-direct-investment-czech-republic-visegrad-comparison_en
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    References listed on IDEAS

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    1. Josef C. Brada & Vladimír Tomšík, 2009. "The Foreign Direct Investment Financial Life Cycle: Evidence of Macroeconomic Effects from Transition Economies," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 45(3), pages 5-20, May.
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    Cited by:

    1. Duong Hoang Vu & Bruce Dehning & Drahomíra Pavelková, 2023. "Firm life cycle and foreign direct investment spillover effect: The case of the Czech Republic," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 31(2), pages 319-340, April.

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    More about this item

    Keywords

    Foreign Direct Investment in the Czech Republic; A Visegrad comparison; Szabo; FDI; GDP; GNI.;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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