Money Can’t Buy CEECs Love? The Determinants of Perceptions of Foreign Direct Investors in Central and Eastern European Countries

Abstract

Foreign direct investment (FDI) is a powerful economic tool, both for investor and host countries. It can kickstart growth and employment, lower costs of production, expand consumer markets, and create spillovers of knowledge and knowhow. However, the global dynamics of FDI have changed in recent years, most notably as China (and to a lesser extent, Russia) have pursued targeted partnerships via state-owned enterprises to gain footholds in Europe, Asia, and Africa. FDI’s use as an instrument of economic statecraft creates political challenges in host countries. These include balancing partnerships between Eastern and Western powers and countering infiltration by multinational corporations now directed by foreign policy agendas. Yet, little is known about how these recent changes in FDI patterns impact the perceptions that individuals in a host country have of a nation investing in their country (investor perceptions). This thesis addresses the broader question of the determinants of investor perceptions by asking specifically: what factors shape investor perception formation in Central and Eastern European Countries (CEECs)? This region, where countries served as models for the transformative effects of FDI in the post-communist era, is now an arena for the competing influences of the US, EU, Russia, and China. This thesis contributes to an understudied topic in International Political Economy, which rarely examines FDI policy from the perspectives of those it impacts. From a policy perspective, investor perceptions offer insights into the complex dynamics between CEECs and global powers and question whether it is possible for nations to be viewed differently as investors as compared to how they are more generally viewed as allies. Understanding these nuances is critical for Western policymaking in CEECs, which needs to address the slowdown in post-communist transitory economic gains and a rise in US and EU skepticism following the 2010 Eurozone Crisis. This thesis develops and examines five hypotheses inspired by international relations literature to analyze the determinants of investor perceptions as influenced by 1.) FDI levels, 2.) critical historical moments, 3.) politicians, 4.) special relationships between politicians and foreign powers, 5.) or geopolitical alliances. This thesis uses a mixed methods research design. Quantitatively, this thesis tests these hypotheses by comparing FDI levels with investor perceptions (collected via an original survey) across nine CEECs. Qualitatively, this thesis uses case studies of Serbia and Lithuania, which possess unique relationships with the US, EU, China, and Russia, to explore context-specific factors that might influence investor perceptions. This thesis finds alliances most strongly influence investor perceptions. This finding includes some key nuances. First, while alliances are important, it is critical to observe nation-specific factors when assessing investor perceptions (economic status, regime type, critical historical moments, and investor conduct). Second, strong alliances cannot excuse poor investment practices, and stellar investment practices cannot compensate for poor alliances. Third, a singular negative moment can disproportionately influence investor perceptions. Finally, the impact investors have on an economy is more important than FDI levels. This thesis’ analysis of FDI is not a silver bullet promising to solve the problems of CEECs. It is, however, a novel lens through which the complex dynamics of geopolitical affiliation may be examined.