Direct Foreign Investment and the Evolution of Markets in Central and Eastern Europe

Abstract

The essence of systemic transformation in Central and Eastern Europe is the replacement of coordination by central plan with coordination via markets, as reflected in the title of the 1996 World Development Report. The same study suggests that foreign investors have an important role to play in the transition process through their contribution to enterprise restructuring and through their transfer of capital and know-how (World Bank, 1996a). Yet foreign investors’ impact on the development of markets has not been analysed systematically.

Compare the problem of establishing transactions after the disintegration of the party-state hierarchy with a hypothetical situation in which all consumers from Paris would be replaced by Londoners, while all producers, wholesale and retail companies from Paris would be replaced by companies from the Milan area. For quite some time Paris would be dominated by chaotic conditions and a serious fall in output as actors would lack any frame of reference to base their decisions upon. (Swaan, 1997, p. 65)