Economic differences after the dissolution of Czechoslovakia : a study of FDI to the Czech Republic and Slovakia

Abstract

The Czech Republic and Republic of Slovakia were formed after the dissolution of Czechoslovakia in 1993, after being a communist country since the end of World War II. Capital flows, and especially foreign direct investment (FDI), have contributed to the economic growth and stability to develop themselves into market economies. This thesis study the development of the Czech Republic and Republic of Slovakia through a theoretical framework which define reasons for why capital moves across borders. This is done to see if the dissolution has resulted in differences in the development of the two countries. The thesis is divided into two time periods; 1993-2003 and 2004- most recent data. I have created four research questions are identified with purpose to see how the countries have been influenced by FDI, and reasons to why investors chose either the Czech Republic or Slovakia. This was examined using investment risk, looking at how the countries dealt with the financial crisis, and an analysis of how much the production (output), savings and investments have been influenced by FDI. The data are gathered from different institutions and organizations such as OECD and the World Bank. Through the study it was evident that the Czech Republic experienced a higher economic development in the first period because of the willingness to perform economic reforms in an early stage. Slovakia on the contrary, experienced the economic FDI boost later, as they reformed their economy to become a member of the EU. During the study it has been shown that both countries have succeeded in attracting FDI and develop their knowledge about industry and production to a point where there are small differences between the Czech Republic and Slovakia today. Their gross national income per person is close to equal as of 2012.