In line with forecasts, the cumulative inflows of foreign direct investment (FDI) into Central and Eastern Europe (CEE) surpassed {dollar}100 billion by the end 2000. As a consequence, this issue has become a major topic investigated by the International Business scholars examining the reforms in the region.; The countries in (CEE) have a common goal: to establish well-functioning market economies with living standards comparable to those enjoyed by the developed countries. The paths taken towards the attainment of this target have differed from one country to another and have brought about different results.; The present study has two objectives: The first is to investigate the relationship between the FDI position and structural (e.g. institutional and technological) transformation in a sample of ten transition economies. The second is to examine the pattern of, and the role of FDI for, the industrial upgrading in these countries. The two theoretical frameworks that we use are the Investment Development Path (Dunning, 1981, 1986, 1988; Dunning and Narula, 1996; Narula, 1996; Dunning, Kim and Lin, 2001) and the Industrial Upgrading Model (Ozawa, 1993, 2001). The thesis also addresses the question of institutional transformation. The issues are examined through econometric testing and case studies. The study yielded five major findings: (1) The levels of institutional development and technological capacity both, significantly and positively, affect the FDI position of the ten countries. Changes in FDI position were also seen to be sensitive to the recent rate of institutional development. (2) FDI flows significantly and positively influence the rate of institutional transformation and the level of technological capacity. This suggests a virtuous cycle of development. (3) There has been a change in the distribution of comparative advantage across industries of the ten countries during the past decade. (4) There has been a shift in revealed comparative advantage from the EU-15, as a leader, to CEE-10, as a follower, and a shift from the more- to the less-advanced transition economies in the sample. (5) While not empirically verified, it may be inferred that FDI has contributed to these shifts in comparative advantage and structural change in the region.
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