Summary: During the process of the European Union's enlargement to central and Eastern Europe, foreign direct investment (FDI) to these countries increased and will continue increasing after the enlargement. The effect of this investment was generally positive of the receiving countries, notably because it provided financial means that domestic economies were not capable of producing. It helped modernise the industry, develop the tertiary sector and ensure the integration of these countries into world trade. The Association Agreements have contributed significantly to the economic integration between the EU and the central and eastern European candidate countries. The adoption of EU-based law in these countries during the pre-accession period increased transparency of legislation and thus improved conditions for foreign investment. The main question now is to see what changes the adhesion of eight central and eastern European countries to the EU in May 2004 will bring. Nearly all barriers to trade between the current and future EU member states have already been dismantled, therefore the key difference will be the subsidies that the new members will benefit from after enlargement. These financial inflows, which could reach 4 per cent of their GDP in 2006, should have a direct impact on domestic consumption in central and eastern European countries. If they are used for financing research and development, education and infrastructure, they would indirectly also favour FDI by creating a better investment environment. It can therefore be assumed that enlargement will have a generally positive quantitative effect on investment in central and eastern Europe. However, the qualitative effect is not guaranteed: after enlargement, FDI will not necessarily contribute to the acceleration of economic convergence between the new members and the rest of the EU. To make convergence possible, the future member states should take advantage of FDI to foster development, as Ireland did. In addition, the concentration of FDI could increa
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