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Structural Challenges for Europe

Edited by Gertrude Tumpel-Gugerell and Peter Mooslechner

The main thrust of the book is that the sharing of mutual experiences is important for generating an acceptable policy mix, both at EU and national levels. The contributors highlight key financial issues, including the role of FDI and of foreign banks in the still ‘under-banked’ acceding countries, the re-launch of social security systems and the fiscal challenges of financing the catch-up process. They also examine the ongoing EU debate surrounding the application of the Stability and Growth Pact in Central and Eastern European Countries (CEECs) and go on to explore the contrasting evidence that some CEECs have shown more extensive privatisation efforts than some EU countries.
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Chapter 21: Foreign direct investment in CEECs and the position of the electricity, gas and water distribution sector

Gábor Hunya


Gábor Hunya 1. MAIN TRENDS OF FDI IN CEECS Amid post-communist transformation, the former centrally planned economies of Central and Eastern European countries1 (CEECs) opened up to foreign direct investment (FDI) around 1990. Initially, FDI was low and started to grow in just a few countries which were ahead of others in terms of institutional reforms, liberalization and privatization. Inflows into the region increased in almost every successive year in the 1990s and continued to do so up to and including 2001 when global FDI plummeted. Despite steady growth, the region’s share in global FDI inflow declined from 4 per cent in 1996 to 1.8 per cent in 2000, recovering to 3.7 per cent in 2001 (UNCTAD, 2002). This fluctuation reflects the fast increase of FDI among developed countries and the bubble in global FDI against the steady increase in the region. Measured against developing countries and CEECs as a combined base of reference, the share of the latter increased from an average 7.5 per cent in the first half of the 1990s to over 10 per cent in 1998 and to 11.7 per cent in 2002. Although FDI inflows have, over time, become more evenly spread among the CEECs, the bulk of foreign capital is concentrated in just a few more advanced CEECs. In the first half of the 1990s, Hungary was the most important recipient of FDI in the region. The annual inflow to this country exceeded that into much larger economies...

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