The region of South Eastern Europe (SEE) has been among the least developed in Europe, at least as far as modern history is concerned. This has been especially true for those countries in the region that were operating under central planning after the end of the Second World War, primarily reflecting the fact that the process of industrialization did not rely on market criteria. Investment decisions, in particular, were to a large extent the result of arbitrary assessments on the part of central planners, instead of reflecting comparative advantage and expected market returns (United Nations/Economic Commission for Europe, or UN/ECE 1999). Economic viability in these countries was mostly preserved through their close cooperation with other communist countries, forming, as a result, a largely closed system. Due to their ‘economic isolation’, therefore, when the economies of these countries came to face the competition of the world markets following the break-up of the communist regimes, most of the existing capital stock turned out to be economically non-viable.
KeywordsEuropean Union Foreign Direct Investment Purchase Power Parity Central Europe Structural Reform
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