Relationship between the Consumption and the Capital Involvement in Central and Eastern European Countries

Abstract

The Central and Eastern European countries (CEE countries) began to restore or more precisely establish a market economy in the nineties of the last century. Domestic capital resources were mobilized in the privatization processes and the sector of small and medium enterprises was being developed. In that period, which was characterized by an increasing rate of global product network formation, the CEE countries could also represent an interesting market for foreign capital searching for the environment for a high level appreciation. The market was distinguished by a relatively low-cost but concurrently educated workforce. The focus of the research presented in this article is the link between the capital involvement and the impact on the consumption price level. It is generally assumed that the capital seeks the regions with a relatively lower wage level. It is related to the lower purchasing demand which may be only saturated if the lower price level of consumer commodities is provided. Based on the development of selected indicators on the one hand of the capital involvement and the level of wages and consumer prices on the other hand, the relations between economic phenomena are analysed in the group of selected CEE countries. The level of differences is evaluated within researched countries in the given trend. The aim is to verify the hypothesis related to the main allocation factors of the capital with an emphasis on the relationship: low labour costs evoke low level of consumption prices in the country and/or region. It is important to see that the capital involvement is not only dependent on the economic factors but on non-economic ones as well, e.g. on political stability.