Financial centre development in Central and Eastern Europe: the rise of Warsaw and the hierarchy of regional financial centres
Keywords: Financial centre

Nearly 30 years after the market transition, the capital cities in Central and Eastern Europe (CEE), namely Warsaw, Prague, and Budapest, exhibit a high degree of financial centre development. In particular, the rise of Warsaw is characterised by the recent reclassification of its securities market from ‘emerging’ to ‘developed’ by FTSE Russell, the first post-socialist economy to achieve the upgrading. While the majority of financial assets in Poland are still managed by the Warsaw-headquartered commercial banks (rather than investment funds), the secondary cities such as Kraków and Wrocław have also become destinations for international financial and business services (FABS) providers. These two thematic approaches – evaluating the position of Warsaw as a growing regional/international financial centre in CEE and illustrating the nuanced primacy of Warsaw as the national financial centre in Poland – are often adopted separately, investigating one theme while taking the other granted.
This thesis, therefore, aims to fill in a gap in the literature with a case study on CEE (Warsaw in particular) and on the relative positioning of regional, national and domestic financial centres. In terms of structure, (1) by documenting the history of financial institutional reforms in Poland, the Czech Republic (Czechia), and Hungary, it lays a foundation for investigating the geography of financial centres in CEE; (2) by measuring the spatial reach of capital market services, it provides a landscape of financial services trade in the region, linking the national financial centres with the global network of cities; and (3) by analysing the concentration of FABS employment in major Polish metropolitan areas, it illustrates how the rise of Warsaw has modified the hierarchy of domestic financial centres. Compiled together, this thesis follows the development of a growing financial centre through its relative positioning vis-à-vis other centres in the region and draws a nuanced and complex picture of cities in finance.
In terms of methodological framework, the post-socialist reforms are presented through historical narratives with the agency of policymakers at the centre of analyses. It calls for a historically informed financial geography with a particular attention to individual reformers and their policies, a departure from deterministic institutional thinking. In addition to the data retrieved from national and European statistical offices, financial supervisory authorities, central banks, and securities exchanges, the datasets on capital market services from Dealogic as well as on FABS employment and gross value added from Oxford Economics illustrate a spatiotemporal distribution of financial actors and activities in the region. The quantile regression estimators alongside firm-centric narratives and descriptive statistics revisit the Central Place Theory: the econometric analysis confirms the key propositions of the theory in regard to the positive correlation between the size/complexity of services and the size of market areas for capital market services in CEE. On the sub-national level, the statistical analysis on FABS employment reaffirms the primacy of Warsaw without a ‘runner-up’ city. Instead, several secondary cities take smaller market shares, with some evidence of Wrocław and Poznań becoming more dynamic. Mergers and acquisitions in FABS are largely concentrated in Warsaw, but there is little evidence to suggest the increasing dominance of Warsaw.
Interpreting the above trends and patterns, Warsaw continues to attract portfolio investment both nationally and internationally as is evidenced by the performance of its securities market and symbolised by the FTSE Russell reclassification. This rise of Warsaw originates in the reformers’ willingness to strengthen the trading platform infrastructures and to cultivate trust among market participants. Although Warsaw has become a provider of larger and more complex capital market services, establishing itself as a leading regional financial centre, the other financial centres in the region (e.g. Prague, Budapest) retain their market shares through, for example, product differentiation. Likewise, while Warsaw remains the dominant player in FABS production, Warsaw’s prominence as a growing regional financial centre did not result in the decline of other domestic financial centres. The growing division of labour among these national and domestic financial centres then requires us to reassess the concept of ‘hierarchy’ as the guiding framework to illustrate the global network of financial centres.
In other words, the assumed hierarchy of national and domestic financial centres is not based on a deterministic zero-sum game where the agglomeration of financial actors and institutions at the national centres would lead to the decline of other domestic centres. The rise of Warsaw is attributed to the city’s ability to handle larger and more complex capital market services rather than to the concentration of domestic financial activities in the capital city. Otherwise, the latter shall increase over time, serving as an additional evidence to illustrate the rise of Warsaw. It follows that the articulator of the national and regional financial markets no longer seems to be the primary role of Warsaw and that the city is anchored to the global network of financial centres as a medium-sized international financial services centre. By listing several market and policy initiatives currently taking place, this thesis also suggests a number of research foci for future projects.