Measuring the Success of EU Expansion Process Comparing FDI Levels before and after the Accession to EU In Relation to CPI-Based Real Effective Exchange Rate Indices

Abstract

The economic impact of the EU expansion on individual member states belong to imperative justifications of the EU enlargement. These contributions reward the union membership becoming the partial sovereignty loss trade-off. FDI inflow is considered one of such key benefits for new members. While the FDI impacts on economies have been studied from many angles, factors that cause the attraction of FDI are to be analysed as they are an important influence in future investment decisions making part of the enlargement justification, justifying the sovereignty loss trade-off. Future FDI inflows may be signalled by variables such as Real Effective Exchange Rate, being a proxy for trade competitiveness, expected to differ in economies prior to and after the entry to EU. The analysis of the relationship between the Real Effective Exchange Rate and the FDI inflow is performed on selected Eastern European countries before and after the accession, with the conclusion that convincing arguments for the FDI inflow indications, at least when measuring them through the lens of Real Effective Exchange Rate and GDP, may not be present.