The impact of foreign direct investments on export competitiveness of companies and sectors: The case of Baltic States

The Baltic States belong to a group of ''radical reformers" who have successfully conducted their economic, political and social reforms. Since the early 90ties they have chosen the EU markets as their foreign policy orientation. This policy was mainly implemented through the development of trade relations and building of a friendly environment for foreign investors (particularly from the EU), as well as adjustment process to the EU accession. Today most of the finance, telecom and a large part of manufacturing sector are foreign-owned. Overall, FDI has financed around one-fifth of fixed investments. With the relatively high importance of FDI, there has been very little academic research on FDI in the Baltics and their role in export specialization (with certain exceptions in Estonia). The paper attempts to present empirical evidence of the role of FDI in building competitive advantages of companies and sectors of the Baltic States on the EU Single Market in 1992-2003. The remainder of the paper proceeds as follows: Section 1 examines the sector, branch and regional structure of FDI in Baltic States. Section 2 represents the specialization indexes of the Baltic States in trade with the EU in a comparative analysis of Estonia, Latvia and Lithuania. Section 3 analyses the correlation between FDI, specialization and employment in high, medium-high, medium-low and low-tech manufacturing branches in the Baltic States. Finally, Section 4 gives some evidence of the contribution of foreign-owned firms to export competitiveness of the Baltic States to the EU markets. The paper ends with some concluding remarks and policy implications.