Factors Governing and Affecting FDI in the Countries of Central and Eastern Europe

Abstract

Foreign Direct Investment (FDI) is a crucial part of the global economy, shaping economic relations between countries and influencing growth and competitiveness. After 1990, the opening of markets resulted in increased foreign investment flows, and the countries of Central and Eastern Europe (CEEC) witnessed significant inflows of FDI. During the pre-2008 Global Financial Crisis era, CEEC attracted large inflows of FDI, primarily motivated by privatization initiatives and the likelihood of accession of some of them to the European Union. The period between the post-Global Financial Crisis and the pre-COVID-19 period is characterized by upward and downward swings in FDI inflows in the majority of the countries of Central and Eastern Europe. It is worth mentioning that, after 2016, not only is there a downward global trend in FDI, but also the dynamics are changing in relation to other macroeconomic variables such as GDP and Trade. In this context, the countries of Central and Eastern Europe rebounded more strongly, while the recovery of the EU economy was modest and fragile. In the post-COVID-19 period, a series of factors, such as the two ongoing wars around Europe and the new terms imposed on the geopolitical game, have influenced and redirected FDI in critical sectors. Notwithstanding long-term challenges, the countries of Central and Eastern Europe will likely continue to attract interest for FDI, since they have significant technological and scientific potential, natural resources, and lower labor costs.