FDI in Bulgaria and Romania in the Wake of EU Accession

Abstract

Bulgaria's and Romania's transition from central planning to market economy has been long and difficult. The lateness of their transformation made their entry into the European Union possible only three years later (in 2007) than the other transition-economy candidates for membership. The delayed transition and ‘Europeanization’ of Bulgaria and Romania have been reflected in the patterns of their inward foreign direct investment. Almost three quarters of these inflows accumulated since the beginning of transition have been attracted after the Thessaloniki Summit in 2003 which locked the date of their entry into the European Union. Moreover, there are questions surrounding the quality and the development impact of inbound foreign direct investment. Despite the major labour cost and corporate tax advantages of locations Bulgaria and Romania, these countries have attracted relatively few efficiency seeking projects, mostly in garments and footwear, an industry that may be under global competitive threat. Potentially, however, they could become the ‘workbench’ within the European Union for many other industries, too. In the near future, the main challenge of these low-income locations is how to ensure that their investment potential materializes. To arrive there, it is important to further improve the business environment (as a continuation of the impressive pre-accession efforts) by strengthening the judiciary system, fighting against corruption and in Bulgaria, against organized crime.