German production networks in Central, Eastern Europe: between dependency and globalisation

This paper offers a first assessment of the contribution of international production to the dynamics of regional integration in Europe. After very high expectations, there is increasing scepticism concerning the role of foreign direct investment as an engine of growth in the region. On the basis of often implicit cross regional comparisons, it is argued that the level of foreign direct investment in Central and Eastern Europe (CEE) is low, that it does not lead to significant technology transfers and backward linkages, and that the prospects for Cross national productions networks to develop continent-wide are at best uncertain. The paper argues that generalisations based on foreign direct investment figures hide more than reveal and looks at the development of Outward Processing Traffic between the European Union (EU) and CEE as an alternative source of evidence to characterise some of the transformations that the European model of integration is undergoing. It finds that EU firms, mainly medium sized German companies, make an important use of non equity forms of international production when expanding eastwards. The resulting patterns of cooperation are fluid, but not necessarily precarious. In fact, they are an ideal vehicle for implementing new flexible methods of production which have greater potentials for spillovers and multiplier effects. Overall, these patterns of cooperation give rise to different market linkages that hardly fit into static categories, a process in which policy makers have only little say.