Outward Foreign Direct Investment in Post-Transition Economy: Poland's Experience

Background

Nowadays, transition economies, with Central and Eastern European countries and Poland in particular, are becoming increasingly important players at international FDI markets. So far these countries were mainly FDI recipients but since their EU accession their OFDI significantly increased. It was made possible as a result of intense economic and systemic transformations launched after 1989. The main objective was to do away with centrally planned economy model and adopt a strategy to build up liberal, free market economy. Reconstruction of the market system in CEECs after several decades of central planning was difficult, exhausting, and time consuming. These countries, including Poland, underwent macroeconomic reforms, which at the beginning consisted in implementing a tight monetary policy and market-economy rules, necessary in view of the total macroeconomic imbalance at the outset of the transformation.

Comparing the experience of Poland and other countries in the region, e.g., the remaining Visegrad Group Countries (the Czech Republic, Slovakia, and Hungary), we may conclude that Poland was confronted with the most difficult conditions at the start of economic transformations. According to the EBRD study the initial conditions index¹ for Poland was 1.9 while for the Czech Republic it amounted to 3.5, for Slovakia 2.9, and for Hungary 3.3 (the higher the index the better initial conditions to implement market reforms) (Transition Report 2000, 2000, p. 21). In spite of this, economic transformation in Poland produced a more general model for other CEECs. Major assumptions were based on five pillars of economic transformation: (1) rapid transformation into a functioning private market economy; (2) liberalization of economic functions, especially in relation to foreign trade and foreign direct investment; (3) privatization of state-owned-enterprises; (4) construction of an effective social safety net by reforming the pension, education, health care, and social security systems; and (5) mobilization of international financial assistance to support the process (Hunter and Ryan 2005). These pillars of transformation were closely interrelated (Mickiewicz 2005, p. 26 and further). The program identified all steps necessary to ensure macroeconomic stabilization. These included, inter alia, the limiting of budget deficits, reducing inflation and establishing fully convertible currency with real exchange rate.