Financial Internationalisation of Central and Eastern European Economies in the Years 2003-2013

Abstract

The aim of this paper is to evaluate the scope, geographic patterns and dynamics of the financial internationalisation in the four largest Central Eastern European (CEE) economies; i.e. Poland, the Czech Republic, Hungary and Romania in the years 2003-2013. In the period analysed the financial internationalisation of CEE countries increased. Empirical investigation revealed that the dynamics of financial internationalisation was much larger than the economic growth of the countries analysed. As a result the share of foreign assets and liabilities in GDP increased significantly. Moreover the net international investment position deteriorated due to positive net capital inflows, which is in accordance with the stages of development hypothesis and the neoclassical model. The direction of the international financial integration for CEE economies in the period analysed was primarily determined by their geographical and political proximity to the European Union, but not to the same extent for all types of international financial flows. The importance of geo-political distance to the host country was lower for short-term international investment (portfolio flows, especially in the stock market) than for long-term foreign flows.