Explaining Uneven Regional Development in Post-Socialist Central Europe: the Link between Governmental Policies, Foreign Investments and EU Structural Funds

After the change of regime, patterns of regional development have been uneven in the Visegrad countries (Czech Republic, Hungary, Poland and Slovakia). While country level GDP per capita has slightly converged, internal regional disparities have significantly increased in the same period. Although new endogenous growth theories predicting the spatial accumulation of economic activities provide an explanation for the differing regional trajectories, they usually do not account for the institutional and policy context in which market forces operate. The paper aims to address this somewhat neglected dimension. First, it argues that market mechanisms and the policies of the post-socialist governments, which adopted foreign capital-driven, export-led growth strategies, have jointly contributed to rising regional inequalities. The claim is supported by quantitative analysis of empirical data collected on NUTS 3 regions, which establishes a strong link between the spatial locations of government-attracted foreign investments and growing disparities. Furthermore, the paper also demonstrates that between 2004 and 2006 the rather prosperous NUTS 3 regions of the V4 have benefited more from the European Union's Structural Funds than the laggard regions. The paper therefore highlights that EU funds, which had been expected to lower the developmental gap between the rich and the poor regions, did not fulfil this goal.