It has been suggested that regionalism is defined “as an economic process whereby economic flows grow more rapidly among a given group of states [in the same region] than between these states and those located elsewhere”. In this paper we approach the economic underpinnings for the Baltic Sea Region by analysing the developments with regard to trade and investment in the quarter of a century that has passed since the fall of the communist regimes that divided the European continent At the same time we look into the political developments that brought the 2009 adoption of the European Union’s first macroregional strategy, the EU Strategy for the Baltic Sea Region. The strategy was a symbolic second milestone with regard to the political endeavours to reintegrate the continent; the first being the 2004 enlargement. Having transformed the Baltic Sea from a ‘Mare Dividum’ to a European ‘Mare Nostrum’ was indeed also a sign of the success of such integrative political processes.

However, it may also be argued that the perceived need for a specific strategy in order to further and deepen the integration and reduce the economic gaps within the European Union gives an indication that there was more to be wished for with regard to this region. Further, more recent political developments in Europe as such as well as the constituent countries of this macroregion has cast some doubts on the future. In this paper we ask ourselves whether developments with regard to investments and trade are in congruence with the notion of the building of one integrated region; does it make economic sense to talk about a Baltic Sea Region or is the eastwest divide still present? For example, to what extent have the developments with regard to foreign direct investments proved sustainable? What sectors are leading the way and which are lagging? What divisions remain to be tackled? These are some of the questions that this paper attempts to address based upon a thorough analysis of the existing sources with regard to foreign direct investment and trade flows. In addition, in a concluding section, we open up an analysis on whether recent political development risk nullifying the progress made on the economic arena – or whether Brexit and connected developments are actually reinforcing the European macroregional agenda?

This paper investigates the dynamics of FDIs in the Baltic Sea Region (BSR) by applying the Poisson Pseudo-Maximum Likelihood estimation method on a gravity model. In particular, we analyze the influence of macro and spatial factors on investment stock changes and discuss whether the origin of these investments and the 2004 EU enlargement have had any effects on BSR FDIs.

Our results suggest that EU enlargement has been significant for FDI activity in the region, and that FDI is basically a regional issue as it tends to be bilateral within the region. However, the same results also suggest that geographic distance is not a significant factor. We conclude that while being traditional in nature, the BSR FDI pattern is undergoing changes towards a lesser degree of geographic bias.