American Foreign Investment in Central and Eastern Europe: Short-term Risk vs. Long-term Profits

Abstract

Five years after the emancipation of the countries in Central and Eastern Europe (CEE), the flow of American foreign direct investment (FDI) into these countries remains sluggish and below earlier projections. Beset by hyperinflation and a worsening unemployment problem, the slow flow of American FDI is not good news to the fledgling governments of these nations. Indeed, without a substantial inflow of capital from outside, the region would have difficulty integrating itself into the world economy. The chief reason behind the slow flow of American FDI is the uncertainty in the economic and social developments of the region. Conditions for investment are clearly less than perfect and the risk is real. But in spite of the uncertainty, the allure of large untapped markets coupled with the availability of a well-educated work force has attracted Japanese and Western European investors to CEE. Thus looking beyond the short-term-risk, staying away from the region can also have long-term drawbacks for American investors.