How Accession to the European Union Has Affected External Trade and Foreign Direct Investment in Central European Economies

During the Central European countries' reintegration into the world economy, their proximity and accession to the European Union greatly affected first the flow of capital and then the flow of goods. Countries that adopted radical liberal reform and had preferential access to EU markets have benefited most, attracting foreign direct investment and drawing multinational corporations relocating their production sites.The collapse of central planning set in motion the reintegration of the Central European countries into the world economy. The European Union, because of its proximity, economic weight, and policy-induced deep integration, has shaped these countries' politics and economics. The process of accession to the EU - which began with the signing of the European Association Agreements in 1991 - has influenced their economic institutions, policies, and performance.Kaminski traces the emerging architecture of commercial relations in Europe and argues that the accession process had its greatest impact first on capital flows and later on goods flows.The countries that have benefited most from accession are those that followed the path of radical liberal reform. Radical liberal reform, combined with preferential access to EU markets, attracted foreign direct investment.The European Union provided an outlet initially for Central European countries' unskilled-labor-intensive products and more recently for skilled-labor-intensive and technology-based products.Knowledge-intensive imports from the European Union have also contributed to industrial realignment in the Central European countries. The prospect of accession and, since 1998, unfettered access to EU markets for industrial products has given a boost to multinationals relocating production in these countries.An earlier version of this paper - a product of Trade, Development Research Group - was presented at the quot;Prague 2000 Accessionquot; session at the annual meetings of the International Monetary Fund and World Bank in Prague in September 2000. The author may be contacted at bkaminski@worldbank.org