Composition of capital inflows in Central and Eastern Europe (CEE) – is Poland different?

Since the integration into the EU, Central and Eastern European (CEE) countries have received a significant amount of capital inflows which has supported their catching-up. For some countries this process resulted in capital misallocation, which led to an unsustainable boom and a subsequent financial bust. This Country Focus takes a closer look at how capital inflows affected growth in CEE countries, which were their drivers and the extent to which their composition can explain differences in growth patterns. Our analysis reveals that Poland managed to avoid the boom-bust scenario as foreign capital went mainly into manufacturing and business services. This growth-nurturing composition of capital inflows was backed by structural factors and an appropriate monetary and micro-prudential policy mix. Going forward, a more growth-friendly mix of capital inflows in the region should be supported by better structural and macroeconomic policies.

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