This paper analyzes recent automotiveinvestment in the Slovak Republic and shows how thedevelopment of the automotive industry has influenced growthin productivity and output in the broader economy. The studyalso discusses the motivations for automotive investment,with the country evolving from a relative laggard in reformimplementation and foreign direct investment in the late1990s to one of the region's top performers and one ofthe fastest-growing economies. It is argued that strongreform implementation, together with continued and crediblecommitment to reforms, were both preconditions forattracting automotive investments and the key factors thatenabled these investments to flourish. The reform effortswere made possible by strong political consensus onaccelerating European Union (EU) accession and boostingliving standards. Taking into account the specificity of theindustry, other aspects related to factor endowments havealso played a role. Generous investment incentives appear tohave played an important role in swaying foreign investorsin selecting the Slovak Republic within the broader regionof central Europe. Once investment in automotive productionstarted, it contributed to additional investment bysuppliers that has helped generate locally owned suppliers.These, in turn, are beginning to supply car producers inneighboring countries. All told, the full impact of theoriginal automotive investment will be felt only overseveral years, but even in the early years it has beensubstantial. With output at the existing three producers setto reach capacity only by 2010, the impact is likely to bemore substantial still.
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