FDI in Central and Eastern Europe’s (CEE) Agribusiness

DOI10.1177/0015732515625580
Date01 May 2016
Published date01 May 2016
Subject MatterArticles
FDI in Central and
Eastern Europe’s (CEE)
Agribusiness: What
Lessons for India?
Takács István1
Nalin Bharti2
Abstract
Central and Eastern Europe (CEE) had adopted restricted industrialization
policy until 1990. The economic and social transition started after 1990, providing
free atmosphere for foreign investments in CEE. Due to such interference,
the early eminent countries were replaced by new eminent ones. This
article examines the affirmative as well as unimpressed role of foreign direct
investment (FDI) in agribusiness in CEE during 1990s–2000s. Like CEE, India
was also a restricted economy until 1991. As a part of continuing reforms,
India has recently allowed a bulk of FDI in agribusiness sectors which have
prompted farmers and local industrialists to raise their voice against such
decision. Agriculture, being a livelihood of major population, needs a better
farm–firm link through investment. Evidence from the CEE has proved many
positive outcome of FDI. However, India cannot ignore some eccentric lessons
from CEE.
JEL: F41, F43, F60, F65, M21, O50, O52, Q02, Q10, Q17
Keywords
FDI, market economy, agribusiness, food industry, transition
Introduction
Foreign direct investment (FDI) is a subject of several debates and also polarizes
researchers concerning various issues linked with FDI. The two typical theoretical
schools are divided as one argues ‘FDI is good’ and another asserts ‘FDI is bad’,
Foreign Trade Review
51(2) 113–146
©2016 Indian Institute of
Foreign Trade
SAGE Publications
sagepub.in/home.nav
DOI: 10.1177/0015732515625580
http://ftr.sagepub.com
Corresponding author:
Nalin Bharti, Indian Institute of Technology Patna, Amhara, Bihta, Patna 801103, Bihar, India.
E-mail: nalinbharti@iitp.ac.in
1 Károly Róbert College, Institute of Business Sciences, H-3200 Gyöngyös, Mátrai u. 36., Hungary.
2 Indian Institute of Technology, Patna, Bihar, India.
Article
114 Foreign Trade Review 51(2)
emphasizing its potential unfavourable effects. The modernization theory considers
FDI as an ideal mechanism of the allocation of the capital, markets and knowledge,
which leads to the development of countries. On the other hand, the theory of the
dependency and world system considers FDI as a tool of formation of a neocolo-
nialist economic system, which results in poverty for the south countries and
wealth of the north ones (Basu & Guariglia, 2007; King & Váradi, 2002).
FDI is a form of capital flow having long traditions, which began to have a new
as well as more important role in the development of the world economy from the
second half of the twentieth century. The trends in world’s FDI are evident from
Figure 1 and Table 1.
After the collapse of the Central and Eastern European communist regimes,
the FDI had a role in the transition from socialism to market economy, opening
up the door as well as the integration to European Union which has accelerated
the transition (Báger & Kovács, 2004). Beside the positive opinions, some other
evaluations do highlight the conqueror behaviour from the rich multinational
corporations (MNCs) against the poor post-communist economies (Bevan & Estrin,
2004; Demekas, Horváth, Ribakova, & Wu, 2007; King & Váradi, 2002; Vu & Noy,
2009; Weresa, 2005).
The FDI flow in the world is not balanced (Chakrabarti, 2003; Honglin Zhang,
2005). Asymmetries could be observed, which could be attributed to several
causes (Alfaro, Chanda, Kalemli-Ozcan, & Sayek, 2010; Blonigen Davies,
Waddell, & Naughton, 2007; Cassidy & Andreosso-O’Callaghan, 2006;
Globerman & Shapiro, 2002; Noorbakhsh, Paloni, & Youssef, 2001) from which
some important point are as follows: preparedness for the reception to invest-
ments by the recipient countries, attracting ability for investment, potential receiv-
ing ability for investment determined by them as well as the factors originated
from the specialties of the recipient countries (i.e., ethnic relations, linguistic–
historical connections) (Galan & Gonzalez-Benito, 2006; Honglin Zhang, 2005).
India was acknowledged as a country of heavy restrictions prior to its new
economic policy in 1991. As a part of new economic policy, Government of India
announced many reforms which have liberalized industry, telecom, IT sector etc.
Trade Policy (1991) aimed to cut down administrative controls and barriers which
acted as obstacles to the free flow of exports and imports. The basic instrument
developed by the policy was the Export Import (EXIM) scrip in place of
Replenishment (Rep) licences. In the context of trade liberalization, significant
and progressive external trade liberalization has taken place since 1991, starting
with the removal of quantitative restrictions (QRs) on most capital and intermedi-
ate goods, resulting in a drastic reduction in an absurdly high level of basic peak
tariff rate of 350 per cent in 1991 to 10 per cent in 2012.
Government has announced a new industrial policy on 24 July 1991. The philosophy
behind this policy was to decide that the state should, by and large, leave industry and
commerce to the private sector and concentrate on those areas where it had a special or
unique responsibility. (Disinvestment Commission, 1997)
The New Industrial Policy 1991 made provision for increased flow of foreign
investment for technology transfer, marketing expertise and modern managerial
2500.0
2000.0
1500.0
1000.0
500.0
0.0
500.0
1000.0
1500.0
2000.0
2500.0
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Billion USD
FDI flows outward
FDI flows inward
Balance
Latin-American
crisis
Mexican
crisis
East Asian
crisis
Russian crisis World economic cris is
Dot-com
crisis
Finanacial crisis
Figure 1. Changes of Inward and Outward FDI Flows in the World Economy (1980–2009)
Source: Authors’ construction based on database of UNCTAD.

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT