Complexity and FDI in market-dependent economies: The hidden effect of industrial offshoring

Apostol, Stefan and Muthama, Wencelaus Musyoka (2024) Complexity and FDI in market-dependent economies: The hidden effect of industrial offshoring. ACTA OECONOMICA, 74 (2). pp. 187-212. ISSN 0001-6373

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Abstract

This study examines the complexity in the Eastern European economies, with a focus on the role of foreign direct investment (FDI). Despite transitioning to market economies, these countries remain economically fragile and dependent. Their lower technological complexity and reliance on foreign capacity make them vulnerable. However, some countries like Austria and Poland demonstrate successful integration of production and innovation. The analysis shows FDI has a limited impact on developing complex knowledge but contributes positively to economic complexity. Results also indicate that in the long-term, economic and technological complexity does not lead to accelerated total factor productivity growth, contrary to complexity literature. Combining labour with innovation, safeguarding local industries, and prioritizing education and research are more effective approaches. The study clearly shows how Hungary is stuck in an “assembler trap.” It also finds that the gap between economic and technological complexity negatively affects liberal democracies.

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