Economic Transformation in South Eastern Europe: Lessons from Central Europe and a strategy for success in the globalised economy.

Central Europe's success in the transition from a command to a market economy has relied on the region's flexible economic structure and high levels of technology-intensive FDI. South-Eastern Europe has lagged behind as a result of dragging its feet over implementing transition reforms and because -- partly as a consequence of the former -- few foreign investors have arrived. Political factors have been the main impediment, manifested in corruption, state capture, rigidity, or war. However, the region could overcome these political obstacles by implementing a series of policies with low political costs. This paper recommends such a portfolio of policies: creating an investor-friendly tax environment and exchange rate regime; strategically targeting particular foreign investors; implementing targeted reforms, such as introducing efficiency-improving measures in the public services; investing in human capital; and integrating with Europe, not only at the diplomatic level but also by reducing trade barriers and creating a matching infrastructure. [ABSTRACT FROM AUTHOR]