The FDI-Led Growth Models of the East-Central and South-Eastern European Periphery

Abstract

The East-Central European countries that joined the EU in the 2000s consolidated a dependent export-led growth model. By focusing on three distinct time periods (2000–2008, 2008–2012, and 2012–2019), we show that this model has both systemic and national roots. Growing international competition from Asia in the beginning of 2000s has forced firms in Western economies to seek alternative sources of competitiveness that involved a mix of wage moderation at home and expansion toward the East. The internationalization of Western firms met capital hungry Eastern governments, which were all too happy to use FDI to restore the competitiveness of their outdated SOEs. Backed by a social bloc that involved domestic and foreign capital as well as workers in the tradable sectors, the export-led growth model took off and generated growth rates well above those in core countries. The 2000s also saw an increase in debt-fueled consumption, which partially compensated for modest wage growth in the region. The 2008 crisis provided an opportunity to put an end to hybridization and to reinforce the export-led component of growth through short-term austerity measures and deeper labor market reforms. These changes consolidated the export-led model that remained in place even amid political reconfigurations that, at least rhetorically, aimed to fight the economic dependency of the region on FDI.