The Late Riser TNC: Outward FDI from Central and Eastern Europe

Abstract

In Central and Eastern Europe, outward foreign direct investment was not yet until recently a prominent factor in the region's reintegration into the world economy, especially when compared to trade liberalization in the early 1990s or inward foreign direct investment in the late 1990s. In the terminology of the investment-development path, with the notable exception of the Russian Federation, the region is in stage 2, whereby inward flows are still growing faster than outward flows. This article argues that a combination of the latecomer status of the region's transnational corporations and the transition shock can explain most of that laggard situation. It hypothesizes that the imminent enlargement of the European Union would give a major push to the outward foreign direct investment flows of Central and Eastern Europe, on condition that adequate government policies to promote those investments are put in place. The impact on the investment-development path, however, is uncertain, because accession to the European Union is often accompanied by a surge in foreign direct investment inflows, too. Finally, the article also looks at the options available to deal with the specific problems of the Russian Federation in relation to capital flight, including ways of regularization and potential return to the home economy.

Keywords: Central and Eastern Europe, investment-development path, outward FDI

JEL Classification: F23, F21, P33, P23, O52