Trade and foreign direct investment in the Baltic Sea Region, 1990-2015: lessons from attempts at regional integration in post-communist Europe

"It has been suggested that regionalism is defined “as an economic process whereby economic flows grow more rapidly among a given group of states [in the same region] than between these states and those located elsewhere” [1]. In this paper we approach the economic underpinnings for the Baltic Sea Region by analysing the developments with regard to trade and investment in the quarter of a century that has passed since the fall of the communist regimes that divided the European continent. The paper offers a novel use and presentation of data on two potentially important factors for regional integration; that is, trade and foreign direct investment. It adds to our understanding by combining national data with insights offered from case studies. The main question asked is whether developments with regard to investments and trade are in congruence with the notion of the building of an integrated region? In short, does it make economic sense to talk about a Baltic Sea Region or is the east-west divide still omnipresent? The question of what drives integration is pertinent against the backdrop of current discourse where globalization and factor mobility are increasingly being questioned. In the light of this it is of interest to see what lessons can be drawn from this very recent experiment in (re)uniting a once divided continent. For example, to what extent have the developments with regard to foreign direct investments proved sustainable? What sectors are leading the way and which are lagging? What divisions remain to be tackled? The structure of the paper is such that it starts off with an introduction followed by an overview of the policy initiatives taken to (re)unite this particular part of Europe. In the section to follow, the starting point for potential integration is outlined as we look at the economic reforms that moved the region from Cold War isolation to a process of economic transformation. The main thrust of the paper then comes in a section where developments with regard to trade and foreign direct investment, in turn, are analysed through a novel use of existing sources. The concluding section summarizes the lessons learned from this episode of (attempted) regional integration. In particular we believe there are important insights with regard to the relevance of existing theories on foreign direct investments. Also, the post- communist developments cast new light on the (side) effects of the much heralded policies with regard to mass privatization."