Experiences with Foreign Direct Investment in Eastern Europe

Abstract

The Central and East European (CEE) economies spent several decades cut off from the mainstream of world economic processes. The autarky and central planning practiced under state socialism imposed the principles of a command economy instead of a market economy. The speed and thoroughness with which market economic principles returned after the change of political system in 1 989-90 varied from country to country. There is a clear distinction in this respect between Central Europe and the regions further to the south and east. Central Europe has undergone a faster, more substantial process of change. This faster change delivered two types of shock to firms. The first resulted from the measures of liberalization and the collapse of traditional markets, both abroad and to some extent at home as well. These changes on the main markets and the intensified competition tended to push firms toward a major adjustment in their activities, through changes in product and production patterns, technology, and business strategy. The other type of shock was institutional. Firms were obliged by law to change their corporate forn and their ownership pattem, including adjusting to new principles of accounting and new types of financial