Long-Term Prospects of Inward Foreign Direct Investment in the Baltic Sea Region

Abstract

This article models the long-term prospects of foreign direct investment in the Baltic Sea Region. After the turbulences of the crisis years and an idiosyncratic decline in 2012, these flows are expected to recover in 2013–2017, although at a slow speed. Going beyond the values forecast by the model, we can also expect a relatively slow but steady growth in the late 2010s. However, modeling and forecasting cannot fully take into consideration one-off shocks, which are still not excluded given the vulnerabilities of the world economy. The main reason for limited potential growth of foreign direct investment and its vulnerability is the relative openness of the Baltic Sea Region to external shocks. However, on balance, the growth of foreign direct investment in the region can be still faster than in other parts of the world, thanks to the solid macroeconomic bases of the region's economies.