Volume 25 Issue 3 Thematic Issue: Internationalization and Foreign Direct Divestment Flows in Central and Eastern European Economies Article 3 September 2023 Economic Model of Unipolar World Order: Divestment in Central Economic Model of Unipolar World Order: Divestment in Central and Eastern European Countries and Eastern European Countries Mariia Lavrovna Gorbunova Lobachevsky State University of Nizhny Novgorod, Institute of Economics and Entrepreneurship, International Economics and Customs Affairs, Nizhny Novgorod, Russian Federation Igor Dmitrievich Komarov Lobachevsky State University of Nizhny Novgorod, Institute of International Relations and World History, Department of Oriental Languages and Cultural Linguistics, Nizhny Novgorod, Russian Federation Tatiana Dmitrievna Komarova Lobachevsky State University of Nizhny Novgorod, Institute of International Relations and World History, Lobachevsky Research Agency, Nizhny Novgorod, Russian Federation Follow this and additional works at: https://www.ebrjournal.net/home Part of the International Economics Commons Recommended Citation Recommended Citation Gorbunova, M., Komarov, I., & Komarova, T. (2023). Economic Model of Unipolar World Order: Divestment in Central and Eastern European Countries. Economic and Business Review, 25(3), 146-163. https://doi.org/10.15458/2335-4216.1324 This Original Article is brought to you for free and open access by Economic and Business Review. It has been accepted for inclusion in Economic and Business Review by an authorized editor of Economic and Business Review. ORIGINAL ARTICLE Economic Model of Unipolar World Order: Divestment in Central and Eastern European Countries MariiaLavrovnaGorbunova a, * ,IgorDmitrievichKomarov b , TatianaDmitrievnaKomarova c a Lobachevsky State University of Nizhny Novgorod, Institute of Economics and Entrepreneurship, International Economics and Customs Affairs, Nizhny Novgorod, Russian Federation b Lobachevsky State University of Nizhny Novgorod, Institute of International Relations and World History, Department of Oriental Languages and Cultural Linguistics, Nizhny Novgorod, Russian Federation c Lobachevsky State University of Nizhny Novgorod, Institute of International Relations and World History, Lobachevsky Research Agency, Nizhny Novgorod, Russian Federation Abstract Research relevance: Investment processes are not free from the inuence of the political situation and relations between states. The Central and Eastern European countries (CEE) take part in a liberal segment of the global nancial system and have a comparatively peripheral position as latecomers to the EU. Due to this fact their economic model is the most consistent with the principles of the liberal world order. Purpose: The purpose of this paper is to assess and interpret the investment/divestment process in Central and Eastern European countries and comparable nancial systems in the political economy and geopolitical framework to consider the divestment process as a phenomenon connected to the world-order evolution, industrial and nancial globalization. Structure/methodology/approach: We propose to consider the evolution of foreign direct and portfolio investment, together with other macroeconomic indicators that may shed light on the recovery process, as capital outows have occurred in ve CEE countries since 1990 till nowadays. This period covers both the time before and after the 2008 crisis. The study of the research methodology is both qualitative and quantitative. We used existing and target indicators, such as the difference between GNI and GDP , and the surplus/decit of accumulated capital over savings, to see the broader nancial context and the impact of the foreign sector on well-being through a descriptive methodology. While using the regression analysis, we found a greater impact of foreign direct investment on capital accumulation than on savings accumulation, compared to portfolio investment, although both types of investment are positively correlated with “excess” capital accumulation. This approach allows us to make an assessment of the manifestations of the liberal model in the context of the transformation of the world order in states that are not the key beneciaries of the world order, which include CEE. Findings: We tested theoretical developments concerning the impact of the world-order stages on investment and divestment ows in the peripheral economies, as exemplied by the former socialist countries of Central and Eastern Europe. Instrumental nancial inclusiveness toward the considered peripheral economies is limited to foreign direct investment ows in 1995–2021. Portfolio investment ows have been moving towards divestment since 2008, the be- ginning of the destabilization of the current world-order architecture, which also had a negative impact on the cycle of “savings–capital formation,” showing the effects of subordinated nancial integration spoiling the growth resources of peripheral economies. Originality/value: We explained the essence of the economic model of unipolar world order. At its beginning the ben- eciary countries of the Cold War, with high per-capita incomes and signicant nancial resources, brought the former socialist countries—the periphery of Europe—into the industrial globalization through foreign direct investment. Then a similar process has occurred in portfolio investment, indicating involvement of CEE in nancial globalization. This Received 3 August 2022; accepted 21 March 2023. Available online 5 September 2023 * Corresponding author. E-mail address: gorbunova@iee.unn.ru (M. L. Gorbunova). https://doi.org/10.15458/2335-4216.1324 2335-4216/© 2023 School of Economics and Business University of Ljubljana. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/ licenses/by-nc-nd/4.0/). ECONOMIC AND BUSINESS REVIEW 2023;25:146–163 147 nancial integration has been accompanied by the systematic negative value of foreign-sector income balance, indicating a withdrawal of income from all groups of states under consideration. After the 2008–2010 global nancial crisis, the highest point of the unipolar world order, the negative effects of nancial globalization affected the “savings–capital formation” cycle in the peripheral Central and Eastern European economies. As a descriptive analysis of macroeconomic data revealed, the divestment is a process characteristic to the declining stage of stable world order, and it may be envisaged in the outow of portfolio investment alongside a relatively scarce transfer of domestic savings to domestic capital formation. The regression analysis revealed a superior impact of foreign direct investment inows, i.e., industrial globalization, over the “excess” of capital formation in the peripheral economies in comparison to the portfolio investment ows, a nancial globalization proxy indicator. It means that the divestment by outow of FDI, although non-present for now, may have a more relevant impact on the transformation of domestic savings into capital. Therefore, the order and disorder alternation in international relations has an explication in the nancial and investment process in the peripheral economic systems. The deglobalization in its nancial component had a rather negative impact on the difference between domestic capital formation and savings in CEE due to their subordinated nancial integration. Keywords: Divestment, Unipolar world order, Global disorder, Political economy of foreign direct investment, Political economy of portfolio investment, CEE JEL classication: P33, F21, F36 Introduction B oth foreign direct and portfolio investment is- sues are quite politicized (Bastiaens, 2015; Zheng, 2011). Since the international monetary system is characterized by an asymmetry between countries, nancial resources have an uneven distribution. The majority of nancial resources is in the possession of and/or under the management of big countries, mainly those with high per-capita income and mas- sive savings (Nederveen, 2012). Central European countries (CEE or CEE states) are a group of states belonging to the eastern pe- riphery of the EU. Börzel and Langbein (2019) indicated the interdependence of the dynamics of political and economic divergence in the CEE devel- opment, which furthermore conrms the correctness of our use of an interdisciplinary approach. Medve- Bálint and Š´ cepanovi´ c (2019), while studying the implementation of the EU cross-border industrial policies (transnational industrial policies), claimed the economies of Central and Eastern Europe were dependent markets, and the group of states was clas- sied as Europe’s Eastern periphery. The periphery is a manifestation of non- diminishing inequality among countries laid down in the current version of global capitalism and leads to grossly asymmetric power relations (Robinson, 2015). The peripheral status of the national nancial and economic system imposes certain limitations on states in their functioning and development. In the context of the topic of this special issue, the rst such limitation is nancial restrictions, part of which is the phenomenon of foreign direct (FDI) and portfolio investment (PI). Andrade and Prates (2013) noted the key problem of peripheral monetary economies is that in times of increasing uncertainty, the assets of emerging peripheral countries are the rst victims of the capital ight toward countries with strong currencies due to the monetary and nancial asymmetries present in the current nancial post-Bretton Woods order. Kaltenbrunner and Painceira (2015) observed the changing nature of developing and emerging coun- tries’ nancial integration has created new forms of external vulnerability, causing large and volatile capital movements. They later (Kaltenbrunner & Painceira, 2018) named this process subordinated - nancial integration and nancialization. The nding of Gualerzi (2007) about the concentration of direct investment in a few countries indirectly supports the hypothesis on an insufcient investment ow coming into the peripheral countries. Russian researchers Viktorov and Abramov (2019) also raised the issue of achieving monetary power autonomy in emerging markets and developing coun- tries. The problems of the nancial systems of periph- eral states are linked to industrial difculties. Bruszt and Langbein (2020) state that according to the dom- inating perspective in the literature, transnational market integration decreases the room for devel- opment in peripheral economies that do not have enough economic and political power. This situation gives rise to a divestment process, the direct content of which is the withdrawal of capital to other countries. Traditionally, the focus is on foreign direct investment, whose ows are related to busi- ness decisions (internationalization) of multinational corporations, primarily due to the availability of statistics on direct investment as portfolio investment 148 ECONOMIC AND BUSINESS REVIEW 2023;25:146–163 data are relatively new in the World Bank and IMF databases. The reasons for carrying out direct and portfo- lio investments in different countries are studied in a considerable number of works, starting with classical works such as Dunning (1988), Globerman and Shapiro (1999). Therefore, we present a review of the articles on investment in the former social- ist countries, nowadays EU member states. Bitzenis (2007) investigated the FDI determinants in Bulgaria, a country with an economic model and status like the CEE countries, in the late 1990s. The identied param- eters are market size and prospects for growth, low la- bor cost and export-oriented companies, political and economic stability, the presence of an investment link to neighboring countries, geographical proximity, cul- tural proximity, historical links, cultural ties, etc. While studying FDI in the CEE region, Bitzenis et al. (2013) found that, rst, it is characteristic of deeper in- tegration. Second, the developed European countries use FDI to promote stability and peace on the conti- nent in order to ensure the stability and integration of the EU. Vukov (2019) suggested that the inow of direct in- vestments in this category of states is related to a deep integration with the EU, which builds state capacities exclusively for FDI-development, based on and car- ried out under the guidance of MNCs, which makes it virtually impossible for host countries to increase the number of beneciaries of market integration. The literature on recovery is less extensive. As a rule, withdrawal of investments is considered in the literature as carried out by MNCs or generally by private companies. It implies a transfer of industrial assets from the home country to one or more host countries in order to improve the efciency of the organization (Wright & Thompson, 1987), business growth prospects (Benito, 1997), considerable inter- ethnic distance (Pattnaik & Lee, 2013), or industrial excitement to achieve the right economy of scale and size of the afliate network (Myna, 2017). We believe that, given the politicization of the investment process, it is necessary to analyze the re- lationship between the world-order evolution and in- ternational business in general, and investment ows in particular. Shenkar (2004) suggested the diverse political landscape and the various constituencies affected multinational enterprises deal with when seeking to launch or expand foreign investment. This is broadly in line with the ndings in the article by Aluko et al. (2020), namely that there is unidirectional causality from social and political globalization to FDI. An important conclusion based on the evidence presented in the study is that the causal relationship between globalization and foreign direct investment may depend on the time. Thus, it is obvious that inter- national transactions in general and investment ows may depend on the world-order evolution. We further plan to develop the theory of the inuence of the evo- lution of the world order on investment processes in non-central and peripheral states, as well as prove it on the example of the CEE and other EU states in a similar position. Therefore, the research purpose is to consider the foreign investment and other macroeconomic indica- tors through the length of world-order evolution, i.e., the alternation of stable (order) and unstable (disor- der) periods. The usage of quantitative methods as historical descriptive statistics and regression anal- ysis may shed light on investment and divestment processes in peripheral and nancially subordinated economic systems. 1 The political economy of foreign investment/divestment in the peripheral countries and the world-order evolution The battle for prosperity and nancial resources to ensure growth plays an important role in the evo- lution of international relations. The evolution of the system of international relations is a series of periods of stable architecture of the world order dom- inated by one, two, or more leading powers, and inter-order transitional periods or disorder. This al- ternation might have an impact on investment ows, since globalization, being an international develop- ment vector, is largely connected to or even consists of the cross-border investment process (Bojnec & Fert˝ o, 2017; Lejko & Bojnec, 2012). Tierney (2021) also focuses on two states of inter- national relations—order and disorder—in the optics of liberalism, although he perceives them in a perma- nent balanced combination, not in a pure form. The disorder element mobilizes the USA as a hegemon to form a consensus in the internal national political system for the implementation of counterbalancing “ordering” foreign policy. He recognizes furthermore that without a disorder element US global activism may lead to rather contradictive consequences. We share the idea that order and disorder are peri- ods alternating in time. During periods of stable order (“polar architecture”), the predominantly economic expansion and globalization trends prevail, while in turbulent periods of transition, the military power projection and role of geopolitics have more inuence (Khanna, 2010; Rosencrance, 1986). At the center of the picture, there is a stable world order that pre- ceded the current disorder. It was called the unipolar ECONOMIC AND BUSINESS REVIEW 2023;25:146–163 149 Fig. 1. Order and disorder alternation in international relations: the unipolar world order (moment) and disorders (transition periods). moment (Krauthammer, 1991) or the unipolar order (Hansen, 2000). Fig. 1 presents the recent evolution of the world order from the end of the Cold War to the present. According to experts, in international relations there is currently a disorder—a transition period to a stable world order (Haas, 2017; Nye, 2015). It was preceded by a period of disorder, characterized by the disin- tegration of the socialist system and the USSR, the declaration of transition to a market economy, a trans- formational decline. In the picture there are two disorder periods em- bracing the unipolar order in time. The rst one dates back to the late 1980s and early 1990s; the second, current, one started in the 2010s. The current period milestones are the confrontation related to Ukraine since 2014 and the beginning of the US trade war with China in 2018. The driver of the current confrontation is the economic stagnation after the 2008–2010 global nancial crisis, which led to the reduction of markets and the translation of great powers’ rivalry into the political and military planes. The disorder of the early 1990s was not marked by a direct confrontation of the great powers. However, a number of major political events and processes, among them the disintegration of the socialist bloc, the collapse of the USSR and a number of other Central, Eastern, and Southern Euro- pean states, led to a situation of re-start in the world order. As political and economic agreements were reached between the Western countries, Russia (the successor of the USSR), and the increasingly market- oriented People’s Republic of China, a globalization vector replaced the geopolitical trend. Globalization implies liberalization, intensication of trade and in- vestment relations, growth of openness (dependence) of different national economies. The economic situation of the former socialist coun- tries of Europe deteriorated in the 1980s and under- went a transformational decline in the early 1990s. Against the backdrop of China’s gradual expansion, the world economy provided the necessary growth impulses. At the same time, the Western states won the Cold War and gained the status of absolute ben- eciaries of the end of disorder (transition period). When a stable architecture of the world order was formed, the capitalist states had the best resources available not only to the European socialist countries (defeated in the Cold War), but also to the People’s Republic of China. Given the differences in per-capita income and savings, this position predetermined the expansion of Western capital into the former socialist countries that opened to it. Synthetically, our conceptualization of the impact of the evolution of the world order on investment and - nancial processes in peripheral countries is presented in Table 1. First, we distinguish between nancial globalization (Liang, 2012) and, preceding it, indus- trial globalization (World Bank, 2002). The disorder periods minimize both the foreign direct and portfolio investment ows to peripheral nancial systems suffering from political problems. Then, during a rst expansionist stage of order, the countries subordinated in nancial terms receive for- eign direct rather than portfolio investment since the stock markets are malfunctioning in a decit of national savings. When the order is at a plateau stage, the peripheral systems face economic growth, national savings strengthen, and the growing stock market attracts portfolio investment. At the order de- cline stage, the diversication of local capital and the risks faced by the peripheral nancial systems lead to an outow of portfolio investment. Table 1. World order and investment implications. Stage of world order Dynamics Disorder (transitional period) Resetting the inow of foreign direct investments from developed (domineering) to the peripheral nancial systems Order expansion Industrial globalization—FDI inow to the peripheral nancial systems Order plateau Positive nancial globalization—PI inow to the peripheral nancial systems Order decline Negative nancial globalization—PI outow from the peripheral to developed (domineering) nancial systems capturing local savings due to diversication Disorder (transitional period) Resetting the inow of foreign direct investments from developed to the peripheral nancial systems (upgraded lists) Source: Authors. 150 ECONOMIC AND BUSINESS REVIEW 2023;25:146–163 Several works on aspects of the world nancial sys- tem are in line with Table 1. Nederveen (2012) and Wang (2020) have shown the importance of monetary issues in global nancial governance. This nancial power of the leading states includes the following phenomena. First, the IMF and the World Bank im- pose monetary discipline on developing countries. Second, the status of the US dollar as an international liquidity and a major reserve currency is a key ele- ment of the unipolar order and its stability. Third, the liberal economic models of developed countries as- sume a leading role for nancial rather than industrial capital. Fourth, Western countries are the main recip- ients of portfolio investment. Fifth, under the current conditions of the unipolar world, most of the world’s economies have become characterized by growing imbalances in debt and trade. Therefore, the West as a whole and the US have the dominant status in the international monetary system, while most medium- sized and small states have no leverage either in the global situation or in their own situations. For the former socialist countries, a process was launched which Kaltenbrunner and Painceira (2018) later called subordinated nancial integration. The in- tegration began with loans and foreign direct invest- ment as elements that enabled transition economies to restructure to implement market reforms. The Washington Consensus policy was realized in most parts of the world in the 1990s (Lee et al., 2011). The ow of nancial resources in the initial phase of stable (polar) architecture promoted the development of peripheric countries. The predominance of liberal values in world politics and economy has contributed to the improvement of the material conditions of a large part of the world population (Hirono, 2001). The global nancial crisis of 2008 revealed short- comings of the Washington Consensus and neoliberal free-market economic thinking reforms (Li et al., 2010). The focus of the subsequent nancial order has shifted to international nance as leverage to US and its allies’ growth. Vermeiren (2013) called the US phe- nomenon the nance-led growth regime. However, the current state of the world order is far from ideal. Haas (2017) called it global disarray. After the global crisis of 2008, the world economy has essen- tially exhausted the resources of growth in the current world economic order dominated by the US economic hegemony and its partners creating prerequisite to demand for transformation (Gökay & Whitman, 2010; Siddiqui, 2016). The implementation of the scenario of “new normality” led to a deglobalization (Komolov, 2020). Regarding the process of struggle for leader- ship in the world order, Roberts (2019) observes that the United States follows the line of “weaponization of nance.” At the same time, the divestment process can also be considered in a political economy optics, being con- ceived as an element of the capital redistribution from developed countries to developing ones and vice- versa. These inows and outows are conditioned by the difference in their nancial and economic models. We believe that the tools of nancial control created in the colonial period, when Europe and North America accumulated their historical wealth (Bhambra, 2021), have persistent effects on the current world economic order. The former metropolitan areas having higher per-capita income, higher savings, and more devel- oped banking and investment institutions became the main investors or lenders in their former colonies and other similar developing states lacking nancial re- sources. The negative consequences of these models for developing economies are presented in Cho (2014) and Okafor and Tyrowicz (2009), as well as in multi- ple papers on trade and nancial relations between China and the United States; see the literature review in Wang (2020). The phenomenon of constant alternation in nan- cial inows and outows of different natures, which are difcult to manage in the era of capital account liberalization, has become the essence of the current wave of globalization ending now in the geopolit- ical tensions, since there are risks of losing control over the externally exposed components of national savings existing in developing countries (Okafor & Tyrowicz, 2009), due to the United States nance- led growth regime mentioned by Vermeiren (2013). Kapingura (2018) has shown for the Southern Africa Development Community (SADC) region that there is a relationship between domestic investment, do- mestic savings, and FDI, pointing out that FDI help in overcoming the limits on the domestic capital for- mation through permitting a rate of investment which is in excess of that which can be generated by do- mestic savings. In our opinion, there is a low-income growth, mentioned also in Bulman et al. (2016). The SADC region having low income in comparison to many other global macroregions is only drawn into a unipolar world order formed on the basis of liberal economic values. Therefore, the transformation of the inclusive effects of economic nancial globalization into extractive ones is lagging behind. In addition, the article discusses the period between 1980 and 2013, which, according to our theoretical assumptions, does not allow to see a turning point from the situation where domestic capital formation exceeds domestic savings to the opposite. The paper focuses, rst of all, on the foreign direct and portfolio investment (FDI and PI); second, on the difference between capital formation and savings; third, on the difference between GNI and GDP of ECONOMIC AND BUSINESS REVIEW 2023;25:146–163 151 Table 2. Globalization and investment implications. Metrics Type of The parameters of host-subordinated Dynamics of investment globalization peripheral nancial system Foreign direct investment Industrial Sample: low-income and lower middle-income countries (with a signicant consumer market) Stable or declining as per-capita income rises (disinvestment) Portfolio investment Financial Sample: upper middle-income countries (former low and lower middle-income countries) (growth of savings) Volatile Diversication of savings ow from emerging to developed markets (“magnetization” of local savings) Source: Authors. CEE. The interpretation of foreign investment ows is clear; direct investment means industrial glob- alization; portfolio investment represents nancial globalization (see Table 2). The positive difference between capital formation and savings means an injection of additional re- sources from outside, which ensures rapid growth, while the negative difference means at least unpro- ductive use of domestic savings and pumping “future development opportunities” out of the country. A positive difference between the GNI and GDP reects that the state receives additional net income from interaction with the outside world (foreign-sector in- come), and conversely—a negative difference means that the state systematically “gives” part of the do- mestic annual income to other states. Thus, the aim of the article is to study the politi- cal economy of international investments, the cycle of “savings–capital formation,” and the foreign-sector income balance, taking into account the evolution of the world order as the alternation of the periods of post-Cold War disorder, unipolar order (moment), and current disorder. Batrancea, Rathnaswamy et al. (2020) used similar indicators to show how savings impacted the GDP of 10 Central and Eastern Euro- pean and Baltic nations. The research hypotheses are following. H1. Alternation of periods of stable and unstable world order of the unipolar world should be reected in cross- border nancial ows—investment (investment ows) and the resulting income ows from the external sector (foreign- sector income balance). Direct investment by MNCs is determined by mar- ket size and wage differentials. The CEE states have a lower per-capita income than the EU core, surpassing some of them in number, making the direction of FDI obvious. H1a. Direct investment predominates at the beginning of the order expansion and the integration of the new periph- eral states (CEE and other similar groups of states) into the market economy (capitalist system) and into the European Union, as a promise of development and its sources. Portfolio investment is more politicized and volatile, lagging behind foreign direct investment because it requires a strong nancial infrastructure and higher per-capita incomes, which should allow for savings to be channeled to the stock market. After the start of the destabilization of the world order—the decline of globalization and the growth of the trend towards geopolitics—capital ight (divestment) of portfolio investments, from jurisdiction to jurisdiction according to their risk rating, should be observed. H1b. Inow of portfolio investment in the CEE follows direct investment at the expansion and plateau stages of the unipolar order, more volatile; in conditions of nan- cialization of the world economy, the volume of portfolio investment should exceed direct investment and not de- crease, because the savings of the wealthier population will grow. Due to high liquidity, foreign portfolio holdings will decline in a transition period (disorder) at a time of maxi- mum geopolitical tension. Researching investment/divestment processes, we consider it expedient to study not only foreign direct and portfolio investment itself, but also the result of interaction of the national economy with the exter- nal sector, considering foreign-sector income balance (difference between GNI and GDP) as a parameter re- ecting the nancial ows of the current year, but also the results of previous investment activity; however, this indicator takes into account not only nancial but also foreign trade conditions. H1c. Foreign-sector income balance (difference between GNI and GDP) can take positive and negative values. For developing and emerging economies, the difference is nega- tive during periods of structural adjustment of the economy with the attraction of foreign resources. In our case, this applies to the rst of the considered periods of disorder of the late 1980s–the early 1990s, when CEE was in transition 152 ECONOMIC AND BUSINESS REVIEW 2023;25:146–163 to a market economy. As peripheral economies strengthen their institutions, decits should be reduced by improving the business climate, investment risk, and reducing shadow economies. For the CEE states, this should be supported by the positive effect of EU accession. Traditionally, both researchers and policy mak- ers focus on investment/divestment in relation to cross-border (investment, not banking) capital ows. Theorists study investments in order to analyze their factors and impact on the economy. Practitioners seek to ensure that investments are attracted to the econ- omy, especially peripheral or developing ones. Such a methodology leaves aside, in fact neglects, con- comitant nancial processes signicant to national economies concerning capital formation, savings, and income issues. H1d. At the initial stage of growth and stabilization of the world order architecture (unipolar order), the foreign- sector income balance is benecial (positive) to the pe- ripheral (the CEE states) nancial system, or when it is negative, it is less than the inow of both direct and portfolio investment. This means in a sense an inclusive orientation of investors (beneciaries of the rst period of disorder, Western countries). At the stage of narrowing and destabilizing the architecture of the unipolar world order, the extractive orientation of the beneciaries appears when the withdrawal of the CEE product/income exceeds the inow of both direct and portfolio investments. While researching investment/divestment processes, we consider it appropriate to take into account not only foreign direct and portfolio investment, foreign-sector income balance, but also the internal cycle of transforming savings into investments. Alternation of periods of stable and unstable world order of the unipolar world is reected in the national mechanism of transforming savings (gross savings) into investments (gross capital formation). H2. Both inows of foreign direct and portfolio investment have a positive impact on domestic capital formation, help- ing to overcome the limits of national savings. This effect decreases as national per-capita income increases. H3. Industrial globalization, a determinant of nancial globalization, is more relevant to the process of capital accu- mulation. This means that the impact of FDI inows on the periphery economy is greater than that of portfolio ows. H4. At the initial stage of growth and stabilization in world-order architecture, the savings of countries defeated in the Cold War (including CEE) are smaller than capital formation, so the funds are given by the beneciaries. At the stage of deglobalization and destabilization of world order, the extractive properties of the beneciaries are manifested, so the CEE economies have smaller capital formation than savings. All these statements t our view as well as the assumptions about geopolitically driven invest- ment/divestment processes (Komolov, 2020; Woo, 2008) in the framework of the concept of “subor- dinated nancial integration and nancialisation” proposed by Kaltenbrunner and Painceira (2018). 2 Understanding the world-order transformation through investment/ divestment processes in CEE countries 2.1 Data sources and methodology The present study analyzes selected macroeco- nomic variables reecting nancial models of CEE for the period 1995–2021. We used, on the one hand, a number of direct indicators from the World Devel- opment Indicators Database distributed by the World Bank, including Foreign direct investment, net (BoP), Portfolio investment, net (BoP), Gross capital forma- tion, Gross domestic savings, GNI, and GDP . The period starts in 1995, for which the earliest common data are available, and ends in 2021, the most re- cent available year. For all these indicators deation through the World annual GDP deators was carried out. Some of the indicators were used not only directly but also indirectly. We calculated a number of derived indicators using the above and some other indicators, all from the same database, the World Development Indicators (see Table 3 for the explanation and inter- pretation of calculated (derived) indicators). From the methodological point of view, the study represents an explorative case study of panel data aimed to interpret the changes in the world order concerning relations between the traditional powers and rising powers through investment and divest- ment processes. In comparison, we have taken two samples of countries similar in economic development, located on the periphery of Europe. The rst group is the Baltic States (BS), which includes Estonia, Latvia, Lithuania. The second group is the states of Southern Europe, Southeastern European EU (SEE EU) mem- ber states, which includes Bulgaria, Romania, Croatia. The grouping is in accordance with the IMF. Fig. 2 shows average GDP per capita for the groups of countries analyzed. Central and Eastern ECONOMIC AND BUSINESS REVIEW 2023;25:146–163 153 Table 3. Denition and data sources of derived variables with expected signs: macroeconomic parameters. Title of indicator Mode of calculation Sense and the expected sign Foreign directC Portfolio investment, net (deated bn US$) A sum of Foreign direct investment, net (BoP), and Portfolio investment, net (BoP), deated Negative when the increase in the foreign liabilities inside a country (or group of countries) exceeds the increase in the outside assets (net capital attraction) Positive when the increase in the outside assets for a country (or group of countries) exceeds the increase in the foreign liabilities inside (net capital spending) GNI GDP (deated bn US$) “Foreign-sector income balance” The difference between GNI and GDP , deated Positive when a country (or group of countries) gains income through the interaction with the rest of the world Negative when a country (or group of countries) loses income through the interaction with the rest of the world Capital Formation – Savings (deated bn US$) The difference between Gross capital formation and Gross domestic savings, deated Negative when a country (group of countries) spends less in capital formation than it saves; it means a malfunction of saving–investment cycle Positive when a country (or group of countries) spends more in capital formation than it saves, systemically leaving internal or external debt Source: World Development Indicators (WDI), available at: https://databank.worldbank.org/source/world-development-indicators European Countries (CEE) and Baltic States (BS) have similar per-capita incomes, and in more detail the graph shows that prior to the 2008 crisis, GDP per capita in CEE was higher than in the BS. After the crisis, the income situation was reversed. Consider- ing that the Baltic States joined the EU at the same time as the Central and Eastern European countries, the dynamics of the nancial parameters considered, i.e., investment, capital, savings, foreign-sector in- come balance, should be the same for both groups. The Southeastern European EU member states (SEE EU) have a lower average GDP per capita, meaning that within the EU this group of states has the highest potential for low-income growth (Bulman et al., 2016). In addition, Bulgaria and Romania entered the EU in 2007, while Croatia did so in 2013, so the nan- cial investment/divestment and other indicators to be considered in this paper should demonstrate the same but lagged dynamic patterns. 2.2 Descriptive statistical analysis of investment/ divestment process in CEE and other peripheral EU countries The deated CEE macroeconomic parameters were obtained and reproduced in the following gures: – overall foreign direct and portfolio investment ows, – adequacy of capital formation in comparison to magnitude of savings, 0 5000 10000 15000 20000 25000 30000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 CEE BS SEE EU Fig. 2. Average GDP per capita in Central and Eastern European countries (CEE), Baltic States (BS), Southeastern European EU member states (SEE EU). Source: Authors, based on World Development Indicators. 154 ECONOMIC AND BUSINESS REVIEW 2023;25:146–163 100 80 60 40 20 0 20 40 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 FDI PI FDI+PI Fig. 3. Foreign direct (FDI), portfolio (PI), and overall (FDICPI) investment ows in Central and Eastern European countries (deated bn US$). Source: Authors, based on World Development Indicators. – appropriation of income through international economic relations calculated as the difference between GNI and GDP , which we call the foreign- sector income balance. Charts in Fig. 3 reect the direct and portfolio in- vestments in the countries of Central and Eastern Europe in the period from 1995 to 2021. In the pe- riod 1995–2004, direct investments dominated. This is due to the transition of the CEE countries to market economies and the low level of development of the stock institutions. In 2003 and 2004 there is a signicant inow of direct and portfolio investments due to the change of status: the entry of the states under consideration into the EU has inuenced the reduction of political risks. In subsequent years there has been an outow of portfolio investment, which means a speculative nature—short-term investor orientation. For recipient states, this development offsets the overall positive effects of capital inows as a source of development. This is consistent with the ideas expressed in Bruszt and Langbein (2020), namely that once a former tran- sition economy joins the EU, it has limited tools to address domestic needs. Such negative attitudes in peripheral societies suggest that only monetary incen- tives can inculcate liberal values. Hypothesis 1a says that direct investment domi- nates the initial stage of integration of the CEE states into the EU—in 1995–2009, except for the period 2002–2004, it was used by speculators for short-term investments and income generation. Hypothesis 1b, that inow of portfolio investment in CEE lags behind direct investment at the beginning of the unipolar order period, is partially supported. The turning point of portfolio nancial ows to divestment began in 2010, earlier reaching the maxi- mum of geopolitical tensions, as hypothesized. Thus, the political economy of portfolio investment sug- gests that divestment of portfolio investment is a consequence of the nancial crisis and is thus asso- ciated with a liberal world order, no less than with moments of geopolitical tension. According to our calculations, the total effect of foreign investments— the sum of direct and portfolio investments—reached zero by the end of the observed period. That is, at the national level, inows of direct investment (FDI) are fully offset by outows of portfolio investment, as can be seen in the case of CEE. Fig. 4 shows the foreign-sector income balance (dif- ference between GNI and GDP) in the considered CEE countries is negative, indicating that the Czech Republic, Hungary, Slovak Republic, and Slovenia al- together experienced a loss from interaction with the outside world (foreign-sector income) during the en- tire period of observation. Thus, Hypothesis 1c, that foreign-sector income balance (difference between GNI and GDP) takes negative values at the beginning of the period, with decit reduction and possible transition of foreign- sector income balance into positive gures, is partially conrmed. It should be noted that the survey pe- riod covers all available statistics for the states under review available in the World Bank’s World Develop- ment Indicators database. Having started to fall since the beginning of 2000, the part of the domestic annual product systematically given to other states passed from xed values of 10 billion dollars up to 40–50 bil- lion dollars. Maximum outow values were observed in 2006 and 2011. ECONOMIC AND BUSINESS REVIEW 2023;25:146–163 155 70 60 50 40 30 20 10 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Fig. 4. Foreign-sector income balance (GNI to GDP difference) in Central and Eastern European countries (deated bn US$). Source: Authors, based on World Development Indicators. There is a certain contradiction. On the one hand, foreign investment (Fig. 3) in CEE states increased or was at least more likely to reect the growth of foreign assets in the country (resource inows), re- ecting the element of inclusiveness on the part of foreign investors (Western states). On the other hand, Fig. 4 shows that the systematic withdrawal of income is understood as the resulting extractive orientation. Change in magnitude of the foreign-sector income balance (difference between GNI and GDP) after EU accession to a new stationary state, which under the liberal world order had a subordinated nancial sys- tem typical of peripheral countries, goes from the state of resource injection to the state of pumping, as peripheral states grew incomes and savings. This seems logical from the point of view of the logic of nancial capitalism. Advanced rich economies di- versify assets by investing in emerging markets, so when emerging markets save, diversication leads to a nancial ow in the opposite direction. Capital outows from peripheral developing or transit mar- kets are exacerbated by the conditions of nancial globalization, which determine the status of the - nancial system of CEE as subordinated in terms of Kaltenbrunner and Painceira (2018). Fig. 5 reects the situation in the domestic nan- cial sphere of the states under consideration in the transformation cycle “savings–investment (capital 150 200 250 300 350 400 450 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Fig. 5. Gross capital formation and domestic savings in Central and Eastern European countries (deated bn US$). Source: Authors, based on World Development Indicators. 156 ECONOMIC AND BUSINESS REVIEW 2023;25:146–163 80 60 40 20 0 20 40 60 80 100 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 GNIGDP FDI+PI Fig. 6. Foreign investment (inversed), foreign-sector income balance, and cycle “capital formation–savings” in Central and Eastern European countries (deated bn US$). Source: Authors, based on World Development Indicators. formation).” During the observation period, the cap- ital formation and savings changed their relationship with each other. At the beginning of the period, capital formation exceeded domestic savings. That is, there was an injection of additional resources from out- side, which provided accelerated capital formation (renewal) and subsequent rapid growth. After the 2008–2010 global nancial crisis, savings started to exceed capital formation, which means at least the unproductive use of domestic savings and, most likely, the drain from the country of “re- source opportunities for future development.” If we compare Fig. 5 with Fig. 1, we can conclude that the 2008–2010 global nancial crisis was a turning point when the globalization wave launched by the unipolar world order reached its maximum “height.” And then the world order began to move to the quotient through confrontation over the launch of de- globalization. Thus, Hypothesis 4 is conrmed. Fig. 6 shows that in CEE countries the situation with capital formation, savings, and foreign income sector balance is not good. In fact, there is a cycle that partially validates Hypothesis 1d. The main contra- diction is that the foreign-sector income balance of CEE is negative across the entire period of observa- tion. Thus, beneciaries of the rst period of disorder, Western countries, demonstrated their extractiveness to former socialist countries in the transition period. At the beginning of the period, Hypothesis 1d is valid in a sense; despite the negative balance in foreign- sector income, the overall inow of both direct and portfolio investment by its magnitude makes up for this negative value in CEE. Then, the destabilization of the unipolar order be- gan, and the extractive orientation of the beneciaries appeared, since the negative income balance of CEE foreign sector exceeds the overall inow of both direct and portfolio investment. This situation reects the content of the political economy of foreign investment/divestment in the pe- ripheral countries and the world-order evolution. To ensure the representativeness of our theoret- ical concepts of inuence and the hypotheses put forward, we compare these generalized nancial con- cepts with Fig. 6 in groups of states: Central and Eastern European countries (CEE), Baltic States (BS), and Southeastern European EU member states (SEE EU). Fig. 7 presents foreign investment (the graph is reversed), foreign-sector income balance, and cycle (difference) “savings–capital formation” for the Baltic States. Despite simultaneous accession to the EU with the CEE states, the performance of the Baltic States is different. While comparing overall investment ows (FDICPI), the Baltic States had outows of both types of investment in 2008–2009. CEE countries did not. At the same time, investments were highly volatile. This is due to the different sizes of the markets and population of the CEE and the Baltic states, which determine the different investment attractiveness for foreign direct investment. The Baltic countries have the best access to the sea, which is an advantage for globalization; most of the CEE states are landlocked countries. However, the market attractiveness of CEE states is higher, and they have a stable inow of foreign direct investment. ECONOMIC AND BUSINESS REVIEW 2023;25:146–163 157 10 5 0 5 10 15 20 25 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 GNIGDP FDI+PI Fig. 7. Foreign investment (inversed), foreign-sector income balance, and cycle “capital formation–savings” in the Baltic states (deated bn US$). Source: Authors, based on World Development Indicators. The situation of the Baltic States with foreign-sector income balance (difference between GNI and GDP) is less worrying, as there was a positive indicator in 2009, and the transition to higher xed levels of neg- ative values of foreign-sector income balance did not happen. The only similarity in the manifestation of the impact of deglobalization on the cycle of “savings– investment”: like in CEE countries, national savings exceed capital formation (investment). Fig. 8 shows foreign investment (reversed), foreign-sector income balance, and cycle (difference) “savings–capital formation” for Southeastern Euro- pean EU member states (SEE EU). These states have lower per-capita incomes and joined the EU later. The development of indicators also differs from CEE. While comparing overall investment ows (FDICPI), the SEE EU countries, like the CEE countries, had no net outow of investment, but less volatility. These states have an FDI cushion due to an investment area for both European capital and a point of entry for extraregional players (players outside the region) to the EU market as a whole. Moreover, it is indicative that by the end of the period—in 2019–2020—there was an inow of total foreign investment. 30 20 10 0 10 20 30 40 50 60 70 80 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 GNIGDP FDI+PI Fig. 8. Foreign investment (inversed), foreign-sector income balance, and cycle “capital formation–savings” in the Southeastern European EU member states (SEE EU), (deated bn US$). Source: Authors, based on World Development Indicators. 158 ECONOMIC AND BUSINESS REVIEW 2023;25:146–163 1500 1000 500 0 500 1000 1500 2000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 CEE BS SEE EU Fig. 9. Overall Foreign direct and Portfolio investment (FDI + PI) ows (“reversed”) in Central and Eastern European countries, Baltic States, and Southeastern European EU member states, per capita (deated US$). Source: Authors, based on World Development Indicators. The SEE EU situation with the foreign-sector in- come balance (difference between GNI and GDP) is also less worrying, as the transition to the higher xed negative values of foreign-sector income balance did not occur after the peak in 2008. The cycle of “savings–investment” also unfolded after the recession that began in 2009, which makes these countries similar to CEE and the Baltic coun- tries, but then took place in parallel with the inow of foreign investments. For these countries, low-income growth continues to exist. Moving on, we calculated all the derived vari- ables (from Table 3) in per-capita terms, meaning foreign investment (inversed) (as shown in Fig. 9), foreign-sector income balance (see Fig. 10), and cycle “savings–capital formation” (see Fig. 11) in Central 1200 1000 800 600 400 200 0 200 400 600 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 CEE BS SEE EU Fig. 10. Foreign-sector income balance (GNI to GDP difference) in Central and Eastern European countries, Baltic States, and Southeastern European EU member states, per capita (deated US$). Source: Authors, based on World Development Indicators. ECONOMIC AND BUSINESS REVIEW 2023;25:146–163 159 1500 1000 500 0 500 1000 1500 2000 2500 3000 3500 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 CEE BS SEE EU Fig. 11. Cycle “savings–capital formation” in Central and Eastern European countries, Baltic States, and Southeastern European EU member states, per capita (deated US$). Source: Authors, based on World Development Indicators. and Eastern European Countries (CEE), Baltic States (BS), and Southeastern European EU member states (SEE EU) for more accurate comparative analysis. The dynamics of overall foreign investment ows (FDI + PI) show that the Southeastern European EU member states caught up with CEE by 2017 and later on (Fig. 9). This can be interpreted to mean that the SEE EU states still have low per-capita income, as shown on Fig. 2, which is not sufcient to create sav- ings and channel them to the stock market and to involve national nancial markets in nancial glob- alization. The Baltic states have a high volatility of this indicator due to the small participation in in- dustrial globalization and the status of the transit grey investment zone between the EU and the Rus- sian Federation. As for foreign-sector income balance (GNI to GDP difference), the most unfavorable sit- uation is in CEE, as for these countries a cycle of inclusion during the establishment of the unipolar world order and deglobalization indicating a de- cline of world order toward the current disorder has formed fully. In a certain sense this indicator—foreign-sector in- come balance—tells more about divestment in CEE states than investment performance or overall FDI + PI ows considered in Fig. 9, since outow of invest- ments (divestment in the strict sense) is a category for instrumental extractiveness of outside investors, while foreign-sector income balance, when negative, is a metric of total resulting extractiveness. The balance of “savings–capital formation” in its inversed version in the Baltic States and Central and Eastern European countries is negative, with the trend of modular growth. This is evidenced by the fact that the Baltic States and the Central and Eastern European countries simultaneously entered a period of the US-led (and EU-shared) unipolar liberal order decline, earlier than the Southeastern European EU member states. This is why the Baltic States and Cen- tral and Eastern European countries appear to suffer more from subordinated nancial integration and pe- ripheral economic status than considered low-income Southeastern European countries. 2.3 Correlation and regression analysis of difference between domestic capital formation and savings To support or reject Hypotheses 2 and 3, we have considered the general sample of 11 countries, the new EU member states, as well as the three separate samples, Central and Eastern European (CEE) and Southeastern European EU (SEE EU) countries and Baltic States (BS), for the purpose of the regression analysis. We grouped the data into 4 samples—for the countries of Central and Eastern Europe, the Baltic States, the countries of Southeastern Europe (EU members), and the general sample. The sam- pling period is 1996–2021. Descriptive statistics are presented in Tables 4 and 5. 160 ECONOMIC AND BUSINESS REVIEW 2023;25:146–163 Table 4. Descriptive statistics. Variable Mean Std. Dev. Min. Max. All countries, 292 observations Dependent variable Cap Sav, million US$ 4769.53 8323.37 9677.05 55,058.51 Independent variables FDI, million US$ 3951.17 5036.67 2879.38 27,345.53 PI, million US$ 840.86 5156.48 12,522.85 39,569.04 Central and Eastern European countries, 135 observations Dependent variable Cap Sav, million US$ 6610.92 9990.07 9677.05 55,058.51 Independent variables FDI, million US$ 5566.85 6019.71 2879.38 27,345.53 PI, million US$ 1634.34 7103.22 12,522.85 39,569.04 Baltic States, 76 observations Dependent variable Cap Sav, million US$ 1392.72 2530.97 4319.49 9968.98 Independent variables FDI, million US$ 1025.45 847.67 1371.62 3869.87 PI, million US$ 366.43 1620.51 4987.04 3019.50 South European EU member states, 81 observations Dependent variable Cap Sav, million US$ 4868.90 7807.63 4174.05 41,965.93 Independent variables FDI, million US$ 4003.49 4241.15 252.17 20,225.95 PI, million US$ 651.18 2609.73 3628.69 15,896.26 Note: The panel data set for the Baltic States has a reduced sample due to an omission in data for Estonia before 2000. Table 4 shows that all indicators analyzed, espe- cially portfolio investments, are highly volatile. On average, the excess of capital formation over savings is almost equal to the total ow of direct and foreign investment. This and the relationship between capital formation, savings, and balance-of-payments com- ponents suggest the usefulness of a linear, additive regression model estimated with the OLS. A discrep- ancy is limited to the Baltic States, which, unlike the other two samples, represent outows of port- folio investments (net growth of national portfolio assets). Table 5 shows a moderate correlation between the difference Capital formation – Savings (Cap Sav), direct investment, and portfolio investment. Foreign direct investment (growth of foreign as- sets in the country) shows a higher correlation to Cap Sav than portfolio investment. In ad- dition, the lack of correlation between direct and portfolio investment supports, to a certain degree, our framework assumption on two different, es- sentially independent, globalizations—industrial and nancial. As mentioned above, we used a linear additive model for the four samples represented in a panel way. This approach is in line with works of Batrancea et al. (2020), Batrancea, Rathnaswamy et al. (2020), and Batrancea et al. (2022). Cap Sav y;c DaCb FDI y;c Cg PI y;c C+ y;c where Cap Sav y,c represents the difference between capital formation and savings in country c, in year y. FDI y, c and PI y, c are reversed values of the “Foreign Table 5. Correlation matrix. Total sample, 292 observations Cap Sav FDI PI Cap Sav 1 FDI .690 1 PI .314 .113 1 Central and Eastern European countries, 135 observations Cap Sav FDI PI Cap Sav 1 FDI .618 1 PI .322 .076 1 Baltic States, 76 observations Cap Sav FDI PI Cap Sav 1 FDI .468 1 PI .045 .106 1 South European EU member states, 81 observations Cap Sav FDI PI Cap Sav 1 FDI .820 1 PI .199 .008 1 ECONOMIC AND BUSINESS REVIEW 2023;25:146–163 161 Table 6. Regression of Capital formation Savings difference (Cap Sav) on FDI and PI: CEE, SE, BS, and the total sample. Independent Variable Cap Sav CEE BS SE All Intercept 460.12896 17.5200 1584.6539 118.5714 FDI 0.9904 1.4289 1.5121 1.0898 PI 0.39003 0.1502 0.6142 0.3837 No. Obs. 135 76 81 292 Multiple R-squared .4581 .2285 .7142 .5292 , , and indicate signicance at 0.1%, 1%, and 5%, respectively. direct investment, net” and “Portfolio investment, net” indicators from the World Development Indica- tors database in country c, in year y. All indicators are deated. We omitted the foreign-sector income balance, i.e., difference between GNI and GDP , since in the chosen form of additive regression in all the samples, the Cap Sav indicator is rather positive, while the GNI GDP difference is negative. So, the negative value of foreign-sector income balance, al- though evident and relevant, does not obstruct capital absorption. The regression analysis results in Table 6 support Hypothesis 2; hence, for the considered peripheral - nancial system, capital inows from abroad, in either direct or portfolio form, contribute to overcoming the limited national savings. The regression results for the Central and East- ern European states in comparison to other samples showed their lesser reliance (dependence) on foreign direct and portfolio investment. It may be ascribed to a higher per-capita income correlated to more sub- stantial domestic savings. For the Baltic States and the Southern European EU countries, the role of inows and outows of foreign direct investment in a capital formation excess is more signicant. Portfolio inows are also important (benecial) for the Southern Euro- pean EU countries. The Baltic States sample shows a higher volatility and unpredictability to get a repre- sentative result of regression analysis. The higher regression ratio of direct investment ver- sus portfolio investment supports Hypothesis 3 on a greater impact of direct investment on domestic capital formation, i.e., a more positive role of indus- trial globalization in the development of peripheral states in comparison to the nancial globalization. In addition, considering Table 4 revealing signi- cantly increased volatility of portfolio investment, and Figs. 3 and 6 indicating the recent increase in net outows of portfolio investment from Central and Eastern European States, the negative effects of nan- cial globalization on them will continue to increase. It may lead to an “underinvestment” of national savings in the economy. The data on the Southern European EU countries show that economies with relatively low incomes continue to enjoy the positive effects of both the industrial and nancial globalization, since they do not face disinvestment and its consequences. All the paper ndings and conclusions shed light on the essence of the economic model of a unipolar world order in the context of the disinvestment of peripheral economies in the investment, income, and savings components. 3 Conclusions The current situation of global disorder is an undis- puted research interest; however, this phenomenon can be considered in an evolutionary manner, to- gether with the previous period of relatively stable US-led architecture of the world order—and the pe- riod of disorder that occurred as a result of the end of the Cold War. As the object of the study, we have chosen CEE—a group of states for which this change in the architecture of the world order was associated with the transition period to the market economy, in which they entered as defeated states. Western countries, which had beneted from the Cold War, had high per-capita incomes and consid- erable nancial resources. As part of globalization expansion, they have involved the former socialist countries—the periphery countries of Europe—in in- dustrial and then nancial globalization, which has also affected foreign investment ows (direct and portfolio). The foreign investment ows to CEE states are characterized by relatively stable foreign direct investment ows as well as by relatively high port- folio investment volatility. It means that the path of industrial globalization is more predictable and anchoring than the path of nancial globalization. Af- ter the global 2008–2010 crisis and the beginning of the process of deglobalization, portfolio investment from CEE began to move systematically, to the extent that the outow of portfolio investment was equal to the inow of direct investment. Thus, there is a divestment of portfolio rather than foreign direct in- vestment. Contrary to expectations that the growth of per- capita income of the CEE states should lead to a decline in the competitiveness of their industrial sec- tor and a respective foreign direct divestment, the 162 ECONOMIC AND BUSINESS REVIEW 2023;25:146–163 FDI inow continued to be positive, creating a stable component of national nancial systems opposing a volatile nature of the portfolio-investment part. Nevertheless, we believe that the foreign direct and portfolio investment indicators do not fully reect the nancial integration of the CEE states into the global system and the EU system. So, we proposed and calculated two derived nancial indicators based on existing World Development Indicators. The rst index is a foreign-sector income balance (the difference between GNI and GDP), which can be interpreted as follows: positive when a country (or group of countries) gains income through interaction with the rest of the world; negative when a country (or group of countries) loses income through interaction with the rest of the world. The second index cycle, “savings–capital forma- tion” (calculated as inversed difference, i.e., the difference between capital formation and domestic savings), can be interpreted as follows: negative when a country (or group of countries) spends less in capital formation than it saves, which means a malfunction of the saving–investment cycle; positive when a country (or group of countries) spends more in capital for- mation than it saves, systemically leaving internal or external debt. To better understand the nancial situation in Cen- tral and Eastern European countries, we calculated similar gures for the Baltic States and Southeastern European EU member states. The situation on the cal- culated nancial indicators is not benecial for the CEE countries. There is a systematic withdrawal of the product from all groups of states under considera- tion, as the indicator of foreign-sector income balance is consistently negative with one observed year of a positive value in the Baltic States. This has a negative impact on the dynamics of the cycle “savings–capital formation,” which shows that in the Central and East- ern European countries and Baltic States, national savings are not invested in their own development, as they exceed capital formation. This conrms the set of our theoretical developments and advanced hypothe- ses, namely that the expansion, plateau, and decline periods of the unipolar order have several effects on economies with subordinated nancial systems, in our case, former socialist peripheral countries in Eu- rope. Instrumental inclusiveness is evident only for di- rect investment ows (the Baltic States, because of the size of their markets, are not sufcient recipients). Portfolio investment ows have been moving into di- vestment since the beginning of the destabilization of the world-order architecture. The carried-out regres- sion analysis supports this conceptual line, revealing the greater inuence of foreign direct investment as a component of industrial globalization. Taking into consideration the stable net inow of direct invest- ment in all the considered samples of countries, this greater impact coefcient means a persistent positive inuence of industrial globalization on the peripheral economies. The same is true of the capital formation–savings difference. It is noteworthy that the foreign-sector income balance shows that the liberal nancial archi- tecture has consistently extracted from subordinated nancial integration. Western capital, as part of the outow of nancial resources from the Central and Eastern European countries, also takes domestic - nancial resources, given that local capital balances its risks by placing capital in developed markets. The exceptions are the Southeastern European EU mem- ber states, which do not yet have sufcient per-capita incomes, and therefore savings, which are able to break up national nancial markets and be involved in nancial globalization, whose effects on peripheral economies are negative. The research should be extended to other simi- lar cases of peripheral economies to support, reject, or clarify our insights about the role of world-order evolution in the global nancial and investment processes. 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