Political Effects on FDI in the CEE Region: Two Cases of Connectivity and Decoupling from the West

Abstract

The article studies two cases of political impacts on FDI in the Central and Eastern European (CEE) region. The first case covered 15 CEE countries focusing on FDI sensitivity to democracy and elections during their connectivity with the West from 1991–2019. The panel data multi-factor linear regression method gives some arguable results that show that the fall of democracy increases FDI in CEE economies. It is explained by the FDI’s priority of economic scale and growth over the level and direction of democratic development. At the same time, Western connectivity provides an environment for economic growth in the CEE economies. The second case describes the political effects of decoupling from the West on the China–Belarus Industrial Park (CBIP) in 2020–2022. Based on the event study methodology and field survey of 21 residents of the CBIP, the findings show the negative effects of decoupling on the volume of Chinese capital, the number of registered residents, their profit, payback period, and reliance on government support. Both the cases also demonstrate the drop in FDI during election years. JEL Classification: F21, P16, O52