Foreign Direct Investment in New EU Member States from Central and Eastern Europe: An Investment Development Path Perspective

Abstract

The interface and interplay between inward and outward foreign direct investment (IFDI and OFDI), coupled with economic development, constitutes the essence of the Investment Development Path (IDP) paradigm, the central theoretical model in this study. In the context of this model, a comparative analysis is conducted of the IDPs of ten Central and Eastern European (CEE) countries, all members of the European Union (EU). They include Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia. This group of countries shows relative homogeneity in terms of sharing the same communist heritage, common experience in establishing and developing a market economy, and in acceding to the EU: with eight countries joining the EU in 2004 and two (Bulgaria and Romania) in 2007. All of these countries show relative homogeneity in terms of many socio-economic variables (Niroomand and Nissan, 2007) and have exhibited a tendency to economic convergence over the last two decades (Amplatz, 2003; Matkowski and Prochniak, 2007). At the same time though, there are considerable differences between them in their level of development and in completion of the transition process to the market-led system. In fact, one can distinguish more homogenous subregions in the CEE-10 group (see e.g. Caporale et al., 2009), namely the Central European countries (the CEE-5: the Czech Republic, Hungary, Poland, Slovakia and Slovenia), the Baltic countries (the B-3: Estonia, Latvia and Lithuania), and the two Balkan countries located in south-eastern Europe (the SEE-2: Bulgaria and Romania).