Markets & Regions – A project on region building and the long-term sustainability and potential integrative effects of capital mobility and investment in the Baltic Sea Region

Establishment of markets and creation of regions are acknowledged as slow and incremental processes, but there are also examples of rapid and revolving changes, which can deepen or completely change earlier patterns. Such a revolutionary change was the 1989 downfall of the Soviet system in Eastern Europe, which created completely new conditions for the flow of trade, investments and services between countries that hitherto had been separated despite the geographic proximity.

The Nordic countries have since long tried to find different venues to increase the integration between the countries, but after the fall of the Iron Curtain, these efforts were reformulated to create a “Baltic Sea Region”. Initially, these efforts were contained to various political initiatives in order to increase the level of integration in the region, but since, private business has gradually increased their role as region-maker in the Baltic Sea Region. Upon this, industries from the Nordic countries have transferred parts of their production to the Baltic states, which increased naturally export and import between the countries in the region. Yet another revolutionary change is the ongoing global financial crisis, which in particular has hit the former planned economies in Eastern Europe. The financial systems in the eastern part of the Baltic Sea Region have suffered from enormous credit losses, and this development is expected to continue in the foreseeable future. Furthermore, there are also indications that the volume of foreign direct investments in the manufacturing sector has shrunk dramatically, as the same time as the trade has stagnated. This research project intends to increase our understanding of economic processes that are crucial to create markets and regions. These issues are investigated and analyzed in particular from the viewpoint of foreign direct investments and trade flows in the region. Questions that are guiding the project include:

• What are the characteristics of the Baltic Sea Region economic integration since 1989? For example, in what ways and why have the flows of capital, services and goods changed over the last 20 years?
• To what extent have investment flows been an enabling force in the emergence of this region and to what extent is the potential impact sustainable?
• Eastward transfers of production accompanied the enlargement of the European Union, but how has this pattern changed after the financial crisis and what are its implications on a sustainable economic development?
• Will the effects of the global financial crisis lead to a deepened integration of the Baltic Sea Region, or are there any risks of dissolution of the integration efforts made so far?

Thus, our point of departure in this project is the initial post-Soviet liberalisation of trade and investment, and the project analyzes how market forces and capital flows over the last 20 years helped to reshape the regional composition in northern Europe. Using quantitative and qualitative methods (e.g. in-depth interviews and case studies) the project offers a holistic understanding of the “blackbox” of the economic integration process in the region.