The social context in conditionality: internationalizing finance in postcommunist Europe

Abstract

When it comes to embracing the European Union's vision of building a fully integrated financial market, central and east Europeans have far out-performed their west European counterparts. This paper addresses not only why levels of foreign ownership in banks are on average so much higher in Central and Eastern Europe (CEE) than in Western Europe, but also why there is variation among CEE states in how willing they have been to accept those high levels of foreign ownership. I develop a theory of international institutional influence on target states that suggests compliance with international institutions' conditionality and advice depends on the existence of a particular social context. I test the argument in five post-socialist states: Poland, Hungary, Romania, Slovenia and Ukraine.