Divestment, Unipolar world order, Global disorder, Political economy of foreign direct investment, Political economy of portfolio investment, CEE


Research relevance: Investment processes are not free from the influence of the political situation and relations between states. The Central and Eastern European countries (CEE) take part in a liberal segment of the global financial system and have a comparatively peripheral position as latecomers to the EU. Due to this fact their economic model is the most consistent with the principles of the liberal world order.

Purpose: The purpose of this paper is to assess and interpret the investment/divestment process in Central and Eastern European countries and comparable financial systems in the political economy and geopolitical framework to consider the divestment process as a phenomenon connected to the world-order evolution, industrial and financial globalization.

Structure/methodology/approach: We propose to consider the evolution of foreign direct and portfolio investment, together with other macroeconomic indicators that may shed light on the recovery process, as capital outflows have occurred in five CEE countries since 1990 till nowadays. This period covers both the time before and after the 2008 crisis.

The study of the research methodology is both qualitative and quantitative. We used existing and target indicators, such as the difference between GNI and GDP, and the surplus/deficit of accumulated capital over savings, to see the broader financial context and the impact of the foreign sector on well-being through a descriptive methodology. While using the regression analysis, we found a greater impact of foreign direct investment on capital accumulation than on savings accumulation, compared to portfolio investment, although both types of investment are positively correlated with “excess” capital accumulation.

This approach allows us to make an assessment of the manifestations of the liberal model in the context of the transformation of the world order in states that are not the key beneficiaries of the world order, which include CEE.

Findings: We tested theoretical developments concerning the impact of the world-order stages on investment and divestment flows in the peripheral economies, as exemplified by the former socialist countries of Central and Eastern Europe. Instrumental financial inclusiveness toward the considered peripheral economies is limited to foreign direct investment flows in 1995–2021. Portfolio investment flows have been moving towards divestment since 2008, the beginning of the destabilization of the current world-order architecture, which also had a negative impact on the cycle of “savings–capital formation,” showing the effects of subordinated financial integration spoiling the growth resources of peripheral economies.

Originality/value: We explained the essence of the economic model of unipolar world order. At its beginning the beneficiary countries of the Cold War, with high per-capita incomes and significant financial resources, brought the former socialist countries—the periphery of Europe—into the industrial globalization through foreign direct investment. Then a similar process has occurred in portfolio investment, indicating involvement of CEE in financial globalization. This financial integration has been accompanied by the systematic negative value of foreign-sector income balance, indicating a withdrawal of income from all groups of states under consideration. After the 2008–2010 global financial crisis, the highest point of the unipolar world order, the negative effects of financial globalization affected the “savings–capital formation” cycle in the peripheral Central and Eastern European economies. As a descriptive analysis of macroeconomic data revealed, the divestment is a process characteristic to the declining stage of stable world order, and it may be envisaged in the outflow of portfolio investment alongside a relatively scarce transfer of domestic savings to domestic capital formation.

The regression analysis revealed a superior impact of foreign direct investment inflows, i.e., industrial globalization, over the “excess” of capital formation in the peripheral economies in comparison to the portfolio investment flows, a financial globalization proxy indicator. It means that the divestment by outflow of FDI, although non-present for now, may have a more relevant impact on the transformation of domestic savings into capital. Therefore, the order and disorder alternation in international relations has an explication in the financial and investment process in the peripheral economic systems.

The deglobalization in its financial component had a rather negative impact on the difference between domestic capital formation and savings in CEE due to their subordinated financial integration.

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