The Role of the EU in Shaping FDI Flows to East Central Europe

East Central Europe’s (ECE) recent record in accumulating FDI stock is notable even from a global perspective. While most scholarly works downplay the role of the European Union (EU) in this process, this article claims that in an attempt to manage the economic opportunities and threats that ECE posed after the regime change, the EU has actively shaped foreign capital inflows to the region. First, the EU triggered a liberal shift in ECE’s FDI policies. Second, after enlargement, the EU has reinforced ECE’s locational advantages through its practice of approving most of the incentive schemes offered to foreign investors. While investors mainly coming from the old EU members began to dominate ECE economies, the region’s heavy reliance on FDI has also produced a reverse effect: ECE investments have enhanced the global competitiveness of western European firms. To a certain extent, FDI has therefore transcended the traditional East-West divide.