EU enlargement effects on cross-border informal entrepreneurial activities

Abstract

Borderlands, as spaces of various forms of entrepreneurial activities, offer rich examples of informal entrepreneurial activities that depend on the border location to be developed and sustained. Although the socioeconomic contributions of informal activities have been widely acknowledged, little research has been conducted on the ways that enlargement of the European Union (EU), by affecting the openness/closedness of borders, affected the nature and extent of cross-border informal entrepreneurial activities (IEAs). Recognizing the heterogeneity of border regions, in terms of formal and social institutional structures, linguistics and ethnicity, the paper offers a nuanced and extended understanding of the difference the geography of borders, broadly defined, makes to the diversity and persistence/disappearance of cross-border IEAs since EU enlargement. Using qualitative data from interviews collected with households involved in cross-border IEAs in several EU border regions, the paper indicates that cross-border IEAs have a time dimension, reflected in the pre- and post-enlargement changes to the intensity of these activities, as well as a regional dimension, reflected in various dichotomies such as impoverished/affluent, socioculturally proximate/distant and hard/soft borders, reflected in the forms, enablers and constraints of such activities. The paper illustrates how the spatial, economic, institutional and sociocultural characteristics of a context overlap, dominate or recede at different points in time to facilitate/inhibit different forms of entrepreneurial behaviour and to encourage the involvement of, or empower, different groups of people. Thus, context, in all its dimensions, remains an important factor for spatial and temporal explanations of cross-border IEAs as particular forms of entrepreneurial activity.

Keywords

Border borderland EU enlargement informal cross-border activities regional development

Introduction

The transformation process from centrally planned to market economies and the integration of former socialist countries into the European Union (EU) have been accompanied by an increase in regional disparities as a result of the concentration of economic activities in capital cities or other core regions (Dunford and Smith, 2000; Ezcurra et al., 2007). The enlargement process favoured regions in proximity to the EU core, leaving many border regions in a vulnerable position, especially in light of the lack of attention to designing and implementing adequate regional policies by national governments in these countries (Hughes et al., 2003; Monastiriotis, 2008). Typically, border regions are the most disadvantaged areas in a country because of their geographical and economic peripherality. These features, accompanied by other problems of the economic transition these countries underwent, gave rise to a diversity of economic practices, formal and informal (Smith and Stenning, 2006). Many border-dependent activities (Anderson and O’Dowd, 1999), such as various forms of informal entrepreneurial activities (IEAs), proliferated, making the cross-border context a new transitory space of such economic practices, instrumentally used by households to contest regional inequalities (Williams et al., 2001). As a result, IEAs such as petty/shuttle trading have been common features of many border regions, particularly in former socialist countries.

Several empirical studies have looked at IEAs in former socialist countries, emphasizing the commonality of petty/shuttle trading, informal employment and/or the exchange of favours as features of informal activities in post-communist Ukraine, Russia, Belarus and Moldova (Ledeneva, 1998; Kim and Kang, 2009; Welter and Smallbone, 2009). These activities have been considered to offer an opportunity to increase/sustain the income of individuals and their families by taking advantage of the differences in prices between neighbouring countries, as well as in some cases to build up knowledge and capital to engage in more formalized forms of cross-border activities in the future (Wallace and Latcheva, 2006; Welter and Smallbone, 2009; Williams et al., 2010 ), recognizing that informal practices vary in their contribution to local economic development and social cohesion (Williams and Round, 2008).

The cross-border context is a territorial category that can be a zone both of interaction and of separation where people meet or are separated from each other (Anderson and O’Dowd, 1999; Anderson and Wever, 2003). It can be argued that, by affecting the openness/closedness of the border, EU enlargement affects the diversity as well as the persistence/disappearance of economic practices taking place in a cross-border context. At the same time, although the rationale for involvement in cross-border IEAs may be economic, the heterogeneity of border regions – in terms of formal and social institutional structures, linguistics and ethnicity – influences economic processes long after the softening/hardening of borders as a result of EU integration (Huber, 2003; Perkmann, 2003; Topaloglou et al., 2005). Recognizing this heterogeneity, the paper contributes to a nuanced and extended understanding of the difference that the geography of borders, understood in a broader sense than space, makes to the diversity and persistence/disappearance of cross-border IEAs after EU enlargement, together with the implications for local development in these regions.

In order to capture the variety of Europe’s internal and external border regions, the paper draws empirically on a recently completed EU-funded project. The project was mainly concerned with cross-border entrepreneurship in EU border regions, with entrepreneurship broadly defined to include cross-border activities at both the enterprise and the household level. A total of 12 border regions were investigated in 6 countries, covering 6 internal and 6 external borders of the EU: Zgorzelec and Biała Podlaska in Poland; Ida-Viru and South East Estonia in Estonia; Florina and Serres in Greece; Tornio and South Karelia in Finland; Görlitz and Hochfranken in Germany; and Kyustendil and Petrich in Bulgaria. Household activities were defined to include cross-border petty trading activity, sources of supply and purchase, and entrepreneurial activities that draw on cross-border labour flows. A total of 100 household interviews were conducted in the Bulgarian, Estonian, Greek and Polish border regions (see Appendix 1). In the German and Finnish border regions, cross-border IEAs could not be identified, indicating that cross-border IEAs develop in response to economic opportunities and the ability to recognize and exploit institutional deficiencies. Stable institutional structures in German and Finnish regions, as well as well-developed business support infrastructures at the local level, have influenced the creation of businesses in the formal sector. Additionally, the social acceptance of these activities is lower than in post-communist countries, which have a long legacy of such activities.

Given the exploratory nature of the subject and the need for some consistency across the regions, the household interviews were semi-structured. The data gathered were mainly qualitative, thereby enabling a process-oriented view to be obtained of informal cross-border activities. Particular attention was given to the forms and origins of cross-border IEAs, to the barriers and facilitators experienced, especially with regard to EU enlargement, and also to the personal characteristics of the respondent. By looking at these issues, we contribute to the discussions on diverse economies in Europe focusing on borderlands as distinct and transitory spaces of various forms of entrepreneurial activities, enabled or constrained by the very presence of the border and its economic, political and sociocultural meanings.

We begin by briefly discussing the informal entrepreneurship literature and the implications of EU enlargement for IEAs in EU cross-border regions. We then discuss the characteristics of the border regions under empirical investigation, the forms and outcomes of informal activities evidenced in them and the changes brought by EU enlargement, before drawing conclusions.

Informal entrepreneurship

The informal economy has been the subject of extensive academic research. Informality is broadly accepted as activities unregistered or hidden from the state, for tax and/or benefit purposes, that would otherwise be legal (SBC, 2004). No clear boundaries between formality and informality have been established; many people and businesses operate in both areas (Smallbone and Welter, 2001; Williams et al., 2010). Involvement in informal activities can be for monetary gain or for moral reasons and mutual support (Williams and Windebank, 2005; Wallace and Latcheva, 2006; Slavnic, 2010).

Conceptually, two main views may be identified to explain this phenomenon.¹ The most influential, neoliberal economics view argues that informality, rather than being a last resort in the face of unemployment, is a response to dysfunctional institutions and regulatory frameworks that are ill suited to enterprises’ needs or capacities (De Soto, 2000; Maloney, 2004). As a result, entrepreneurs driven by the ‘burdens of excessive regulation’ express their enterprise potential in the informal economy (Jones et al., 2006). The marginalization view, on the other hand, claims that the uneven economic development induced by market forces drives individuals and small firms located in undeveloped areas to informality as the only adjustment/survival strategy (Jones et al., 2006).

Both views are relevant to the widespread informal economy in post-communist economies. On the one hand, an overly burdensome and inconsistently applied regulatory framework led many enterprises to operate at least partially in the informal sector to survive (Welter and Smallbone, 2003; Broadman et al., 2004). On the other hand, post-communist transformation was also accompanied by uneven economic development that drove many people to marginalization, hence their increased engagement in informal practices to achieve and/or stabilize an income (Aidis, 2003; Egbert, 2006; Smith and Stenning, 2006). Various scholars have studied the diversity of the economic practices (including petty trading and trade-tourism) in which individuals/households get involved in post-communist contexts in order to sustain their livelihoods (Konstantinov, 1996; Smith and Stenning, 2006; Smith et al., 2008; Round and Williams, 2010). However, research has also shown that there are no clear-cut categories of motivation (opportunity or necessity) to engage in such activities – they change over time (Welter and Smallbone, 2009) and it is not always the poorest but those with access to human, financial and better social networks or family links who are deploying these strategies effectively (Smith and Stenning, 2006; Williams and Round, 2008). As importantly, in post-communist countries individuals often adapted the already established socialist informal practices and networks to their new reality (Pickles, 2010; Polese and Rodgers, 2011).

However, these views on informality fail to depict the diversity and complexity of the informal activities embedded in the distinctive geographies of such practices (Williams, 2005; Smith, 2004; Williams and Round, 2011). Informal activities, as forms of entrepreneurial activity, are socially and economically embedded phenomena whose variety of forms, practices and importance in different contexts (Wallace and Latcheva, 2006; Welter and Smallbone, 2009) can be affected by the different socio-spatial contexts in which they occur (Williams and Round, 2008; Trettin and Welter, 2011). Thus, the particular ways in which socio-spatial contexts give scope for different types of informal activity, which in turn open up new economic spaces, are less recognized. Borderlands, as distinctive European spaces, provide one such example of IEAs enabled and/or constrained by the existence of the border itself.

Borders, borderlands and the implications of EU enlargement for IEAs

In discussing cross-border IEAs, two concepts from border studies might be of interest: the border and the borderland. Borders, once perceived as physical lines that divided states and geographical spaces, have recently been conceptualized as transformative and evolving processes that are politically, economically and socially embedded (Diener and Hagen, 2009; Paasi, 2009; Van Houtum, 2010). The borderland, on the other hand, is the region in close proximity to the border within which daily life practices are affected by the very presence of the border (Newman, 2006). Bordering processes can create barriers or build bridges to human interaction and exchange (Anderson and O’Dowd, 1999), define ‘insiders’ and ‘outsiders’ (Newman, 2006), and reflect existing differences or construct new ‘others’ (Diener and Hagen, 2009). However, local communities in borderlands often form their border identities and border perceptions on the basis of their common interests and cultures, especially when they share a similar language and culture (Kolossov, 2005; Diener and Hagen, 2009). This suggests that the borderlands also have an impact on the bordering process.

Among daily practices in borderlands, economic opportunities created by the presence of the border, such as cross-border IEAs, play an important role in livelihoods in post-communist border regions. To cope with many of the transformation problems, individuals in borderlands may exploit differences in the prices of goods, services and labour (Holtom, 2004) or asymmetries reflecting market failures and dysfunctionalities, such as a shortage of goods or services on either side of the border (Anderson and O’Dowd, 1999). These opportunities are supported by the inefficiency of formal rules, extended social networks and long-standing traditions of favour exchange or corruption. Social networks support cross-border traders in accessing the capital necessary to get involved in IEAs and in coping with the problems related to changes in government policies or obstacles from customs (Wallace et al., 1999; Egbert, 2006).

Some scholars (Anderson and O’Dowd, 1999) see these activities as potentially inhibiting the emergence of dynamic cross-border production networks; others argue that cross-border IEAs have contributed both to personal well-being and to enterprise development in border regions (Williams et al., 2001; Welter et al., 2007; Welter and Smallbone, 2009; Bruns et al., 2011), as well as to social change by influencing the ways in which individuals in borderlands construct their relationships to others (Cassidy, 2011). Several studies have been conducted on cross-border trading in post-communist border regions: Neef (2002), Wust and Zichner (2010) and Cassidy (2011) presented evidence on the Romanian–Ukrainian border; Welter and Smallbone (2009) looked at the Polish–Belarusian border; Egbert (2006) explored the Bulgarian–Turkish border; and Williams and Baláž (2002) investigated the Ukrainian–Slovak border. These studies have suggested that cross-border IEAs offer an additional income, increase the living standards of the individuals involved in such trade and their families, and, most importantly, for many have been a way to cope with the high levels of unemployment experienced, especially after the collapse of many old industrial areas.²

One genuine concern after the eastward shift of the EU external border in 2004 was that cross-border trade and tourism, as well as the good-neighbourly relations that, in some border regions, set aside the hostilities of the Second World War, could have been seriously damaged by EU enlargement (Wolczuk, 2002; Batt, 2003; Moisio, 2007). The orientation of the new EU members towards the West, combined with centralization of the external border regime, which is designed to tighten control at the EU external border, could have significantly hampered existing cross-border cooperation of individuals and enterprises (Welter et al., 2007; Bruns et al., 2011) and exacerbated the socioeconomic inequalities between the EU and the Eastern borderlands. When discussing informal entrepreneurship and regional development after the EU enlargement, three aspects of borders are of value. We briefly discuss each aspect, acknowledging their interrelatedness.

First, borders are temporal, and their changing nature over both time and place (Berg and Ehin, 2006) enables or constrains various types of, and strategies for, cross-border activities. EU enlargement led to the revision and restriction of many of the existing bilateral border regulations between the new member states and their neighbouring countries. A strict visa regime based on the Schengen acquis, implemented in 2007 by all countries except Bulgaria and Romania on the eastern external EU border, was introduced between these countries, creating a new dividing line in Europe (Batt, 2003; Holtom, 2004; Moisio, 2007). Others, however, contend that border openness/closedness depends on the implementation of border practices across various border contexts (Berg and Ehin, 2006). These changes to the permeability of borders have arguably led to the altering of cross-border IEA strategies or a redefining of their attractiveness for many households in borderlands, as recently evidenced by Bruns et al. (2011), who studied several East European cross-border regions.

Second, from an economic perspective, the EU enlargement and integration process has affected border regions in very different ways. Generally, as a result of bringing together countries with different levels of economic development and integration, EU enlargement has increased regional disparities within new member states (Lackenbauer, 2004; Niebuhr, 2008; Niebuhr and Schlitte, 2009). The contrasts have increased between cores and peripheries, between urban and rural areas and between western and eastern parts of Central and East European countries (Bachtler et al., 1999; Weise et al., 2001; Petrakos et al., 2011).

Western border areas, core and accessible to the EU space, have been in a better position to exploit this market potential through new economic opportunities, as evidenced by new firm formation and increased business activity, foreign investment and tourism (Kallioras et al., 2009; Petrakos et al., 2011). The eastern peripheries, on the other hand, have been strongly disadvantaged. They are characterized by low population density as a result of outmigration, poor infrastructure and unfavourable economic structures; major challenges of restructuring, diversification and environmental regeneration in old industrial areas; the decline of the agricultural sector; and rising unemployment, which threatens social stability (Bachtler et al., 1999; Leick, 2010; Bański and Janicki, 2012). These features raise questions about the role of regional policy at both national and EU levels (Petrakos et al., 2011).

These two contrasting spatial contexts – the affluent and the impoverished, the EU core and the periphery – have implications for the nature and forms of cross-border IEAs because the border location has changed the economic power relations in these borderlands. Developed domestic regions and developed regions across the border would have a high potential for formal entrepreneurial activities, whereas the uneven development of border regions offers scope for taking advantage of differences in prices, production and labour costs. EU core regions would have access to the larger and wealthier EU market, hence more opportunities for formal entrepreneurial activities.

Third, borders have historical, social and cultural dimensions and embody memories and symbolic representations (Delanty, 2006), which are more persistent over time. As such, they may constitute only physical barriers in cases where ethnic and cultural links between the populations on both sides of the border, or other social networks constructed over the years, have led to less division between ‘them’ and ‘us’. Of special importance in this context, and certainly a sustainer of cross-border IEAs, is close sociocultural proximity. This is particularly the case in the context of a tradition of intergenerational solidarity in Central and Eastern Europe, with experience of similar hardships in the communist period and long familiarity with economies of exchange and ‘favours’ (Ledeneva, 1998; Wallace and Latcheva, 2006). This feature of borderlands affects social power relations, with the ones endowed with this type of social capital probably continuing to capitalize on the border location. Thus, in the short term, enlargement may have only minimal effect on the sociocultural foundations of these borderlands, which will continue to facilitate informal petty trading or small-scale business activity based on kinship ties and/or on business/personal acquaintance.

In summary, EU enlargement has changed the spatial characteristics of the borderland within the EU larger space. EU enlargement, especially for regions located in the core of the EU, has led to faster economic growth, convergence in prices and institutional enforcement and, hence, fewer opportunities or less need for cross-border IEAs. Most importantly, EU enlargement, by changing the status of borders, presents different types of opportunities for, and restrictions on, informal entrepreneurship. We focus next on the interactions of these border changes with conditions for cross-border IEAs.

Cross-border IEAs in EU border regions: empirical insights

The discussion of the empirical data highlights the particular ways in which EU enlargement has affected the forms and intensity of cross-border IEAs in relation to a variety of hard and soft borders. Not surprisingly, the border regions investigated empirically (see Figure 1) are characterized by low economic development compared with their country’s average; they face extended economic problems such as low levels of gross domestic product, unemployment and the absence of investment activities; they have an ageing population; and they experience high levels of migration to larger cities or to other EU countries.

Figure 1.

Map of the case-study regions.

The eastern and south-eastern border regions, such as Ida-Viru, South East Estonia, Kyustendil, Biała Podlaska, Florina and Serres, tend to be less economically developed. For example, South East Estonia, Serres and Biała Podlaska are mainly agricultural. In Biała Podlaska, 80 percent of the population live in rural areas and 60 percent of employment in the region is in the agricultural sector. Ida-Viru and Kyustendil, which relied heavily on large-scale industry, are now facing issues of structural change, leading to enterprise restructuring and closures, followed by high rates of unemployment and the emergence of poorly qualified and long-term unemployed for whom reintegration into the labour market may be particularly difficult. The western border regions (Zgorzelec and Petrich), on the other hand, are predominantly urban and their new location at the core of the EU may contribute to their further economic development. Differences in economic development still exist between internal border regions of the EU, such as between Poland and Germany or between Greece and Bulgaria, reflecting the fact that Poland and Bulgaria are new EU members.³

These borderlands are also characterized by: (i) similar hardships during the Soviet experience; (ii) ethnic populations cohabiting in border regions, such as the Setos in South East Estonia, the Russian minority in Ida-Viru and the Slav-speaking population in Florina-Pella; (iii) similar traditions and local customs. Other important features of these borderlands, with implications for the way border practices are implemented, are the political tensions between countries, such as between Estonia and Russia, Poland and Belarus, and Greece and the former Yugoslav Republic of Macedonia (FYROM). Overall, these regions are characterized by a lack of local demand for goods and services and low purchasing power on the part of the population. As a result, formal entrepreneurial activity has been only modest, giving scope to IEAs that thrive on ‘exploiting’ the border location. As other studies have suggested (Wolczuk, 2002; Welter et al., 2007), IEAs in the investigated borderlands experienced a boom at the beginning of the 1990s with the collapse of communism and the softening of borders. The large differences in prices and the variety of goods in border regions attracted many households to engage in IEAs as a way of escaping unemployment or generating extra income for themselves and their families. Typical examples of IEAs included the sale of imported clothes, wholesale purchases of foodstuffs, the export of fuel or alcohol, or illegal work in the area of services (as taxi drivers, hairdressers, tailors or bakers), as illustrated by some respondents’ accounts.

‘I have traded [clothing] for 7 years . . . I took this job because I was not able to find anything else. I was studying; I had to earn money for studies and to maintain myself .’ (Ida-Viru, Household 8⁴)

‘I used to buy cucumbers, tomatoes and olive oil from Greece and sell it to restaurants in Bulgaria. For example, Greek olive oil is of better quality and often the prices in Greece are cheaper.’ (Serres, Household 2, Bulgarian)

‘I was unemployed. I saw that people trade and make a living out of it. I made some contacts, started to sell. I found out that you can indeed make a living out of it.’ (Biała Podlaska, Household 6)

The changes related to the integration process of these East European countries into the EU and to the enlargement process, with associated changes in border regimes, are discussed next with reference to the hard and soft borders under investigation.

Hard border regions

EU enlargement and the hardening of eastern borders have certainly changed the realities of life for many households that relied on cross-border IEAs to ‘survive’ and/or sustain a decent living. Some cross-border IEAs still persist, mainly facilitated by the sociocultural dimension of the border. The empirical evidence, however, also shows that few of these activities can significantly compensate for the difficulties associated with the peripherality of an eastern borderland. This peripherality, combined with the tightening of customs and visa regimes, has hindered engagement in cross-border IEAs, as illustrated below:

‘Since 2004 trading on an individual level has decreased for several reasons – decreasing price differences; customs regulations; difficulties in crossing the border; political relations between the countries . . . The quantities of goods allowed to be taken across the border are limited. The number of people with a year-long visa has decreased . . . Additional income from cross-border trade has decreased since joining the EU.’ (Ida-Viru, Household 8)

‘I started it [cross-border trading] because in Greece prices are cheaper. We find auto spare parts there [in Greece] that we cannot find here. Two to three years ago it was even cheaper.’ (Florina, Household 13, Macedonian).

‘People used to buy children’s clothes from Russia for their kids, but at the moment the price difference has disappeared, there is no point in bringing children’s clothes as it doesn’t pay off any more.’ (South East Estonia, Household 2)

‘[R]ecently cooperation has worsened. Fewer people come from the east. They do not have money and the prices of the articles I sell are similar over there . . . Yes, it [EU enlargement] worsened it, reduced it. Fewer people come, visas are expensive, legal and formal restrictions have increased and there are limits on the export of goods.’ (Biała Podlaska, Household 11)

Faced with these obstacles, petty traders’ strategies have focused on the identification of goods for which trade is still profitable and on ways to compensate for the limit on goods that cross the border. In South East Estonia, for example, petty trading takes place mainly from Russia to Estonia and the main trading items are cigarettes, alcohol, fuel and medicines.

‘The allowance for fuel is a tank load but different cars have different tank sizes so people can still trade fuel . . . The price of fuel in Estonia affects trade across the border; if prices rise in Estonia due to excise duties, for example, then trading flourishes because prices in Russia are fixed by the state.’ (South East Estonia, Household 1).

Fuel trading is also profitable in Biała Podlaska, as illustrated by the case of a Polish pensioner:

‘I buy only at the nearest petrol stations and some selected shops in particular border towns of Belarus and Ukraine. I want to make some more money to supplement my pension . . . my pension is low and it would not be enough for medicines and house maintenance. Recently, I have been having problems with entry to Belarus – I was there 99 times within eight months and they do not want to let me in any more. I go to Ukraine instead; there are no such restrictions over there . . . It [EU enlargement] has restricted access to adjacent regions. One can bring in smaller amounts of cigarettes, alcohol, fuel and other products legally.’ (Biała Podlaska, Household 7)

Ingenuity and social networks are needed to cope with the limited quantities of goods that can cross the hard border. Normally, people cross the border several times a day, since at some borders there is no limit on daily crossings. Alternatively, as was randomly the case in Estonian regions, five or six people get together and go over the border by bus, everyone buys something, and later the goods are brought together and sold to consumers. Illegal taxi drivers on the Greek–Macedonian border use a similar strategy:

‘The Greek authorities check sometimes. They check who is in the taxi. This is why I have to bring only people I know well from Thessaloniki airport to Macedonia. If they catch me with clients they would fine me €500 per person.’ (Florina, Household 6)

These changes have thus reduced the significance of cross-border IEAs as a primary source of income, as was the case before EU enlargement. Currently, these activities are irregular and make up a much smaller percentage of household income; the interview data suggest this is less than 50 percent in most cases. Interestingly, in the most undeveloped regions such as South East Estonia, EU enlargement has also contributed to a shift from monetized to non-monetized forms of cross-border IEAs. The border is mainly crossed by older people, who buy goods for personal use or for friends and acquaintances. Despite these changes brought about by EU enlargement, cross-border IEAs still provide a safety net for many who otherwise would be marginalized households.

‘It’s some sort of relief for the family budget if one goes more often to Russia . . . but its [petty trading] importance has decreased . . . the quantities that can be taken across the border are limited, and these quantities have been decreasing all the time, which doesn’t allow one to trade much any more.’ (Ida-Viru, Household 2)

‘Trade intensity has changed in the course of time . . . it has been very limited since 2000. Until 1997, this activity covered almost 100 percent of my household’s income whereas its current contribution is no more than 40 percent.’ (Kyustendil, Household 5)

‘Very important, because I am unemployed. The income is about 50 percent.’ (Biała Podlaska, Household 17)

The social dimension of the border (such as a similar language, a common history, comparable hardships or ethnic links) has acted as an enabling force for cross-border IEAs despite the hardening of borders and the subsequent changes, of which the intensity of petty trading and the tense political relations between Estonia and Russia, Poland and Belarus, or Greece and Macedonia are the most important. Large groups of people are enabled to pursue cross-border petty trade, taking advantage of the meagre price differences, through their access to visas on favourable terms or to EU passports. The hardening of borders, for example, provided ethnic populations living in the EU border regions with a competitive advantage. In Estonian border regions, the large numbers of inhabitants of Russian origin, especially in Ida-Viru, are subject to simplified visa procedures:

‘On the individual level, joining the EU hasn’t influenced cross-border activities much, nor did the April events in Tallinn in 2007, because trading takes place between people and here the price difference, not politics, is important. At least this is the case in the Narva–St Petersburg direction, because there are Russians living on both sides, which is favourable for trade.’ (Ida-Viru, Household 2)

Those who have received visas on favourable conditions cross the border more often and, in turn, their extra income from cross-border trade is certainly higher. As one South Estonian petty trader emphasizes: ‘For those who have a Russian visa on favourable conditions, petty trading pays off more’ (South East Estonia, Household 7). Others have dual citizenship (Estonian and Russian; Bulgarian and Macedonian; Bulgarian and Greek), so they can cross the border freely. Thus, the hardening of borders has changed the power relations in these regions, putting these people in a better position compared with those who are subject to time-consuming procedures, issuing costs and visa provisions.

In summary, the evidence from the impoverished regions with hard external EU borders has shown that IEAs are slowly fading away as a result of the constraints imposed by the hardening of borders and its consequences. In the most impoverished regions, such as South East Estonia, activities that would generate some income are slowly being replaced by non-monetized ones that ensure the survival of the households concerned and their friends and relatives. Because of the limited opportunities these regions offer in terms of jobs or enterprise creation in the formal sector, entrepreneurial behaviour is mainly related to social coping and survival and to taking risks or exploiting the changing boundaries between formal and informal institutions. Individuals in these regions show entrepreneurial drive in providing the means of survival and/or additional income for themselves and their families through alertness to differences in prices (where they still exist), their links to suppliers/buyers across the border and their creativity in overcoming border obstacles. Cross-border IEAs in these border regions can be best depicted as an expression of marginalization, which has implications for the local development of these regions.

Most importantly, the sociocultural dimension of the borderland has ensured the persistence of cross-border IEAs, despite the difficult external conditions. In line with social embeddedness perspectives on informal activities (Wallace et al., 1999; Wallace and Latcheva, 2006; Welter and Smallbone, 2009), the set of cultural, social and ethnic links in these regions continues to cushion cross-border IEAs that otherwise would be disappearing, leaving many households to cope with a more difficult existence. Whether or when these activities will disappear completely is a moot point and probably depends on future economic development and investment in these borderlands, as well as on political relations between countries. Regional policy in border regions can fall between the stools of EU and national security interests and local development needs. At present, these offer little encouragement to the entrepreneurial potential in these regions to exploit more economically productive uses.

Soft border regions

In the soft border regions at the western end of the EU, petty trading has largely disappeared as not sustainable, or it has been absorbed by the formal economy and the greater opportunities in the wealthier cross-border market, supporting the view that EU enlargement has mostly benefited countries in the core of the EU (Niebuhr, 2008; Niebuhr and Schlitte, 2009). The softening of borders and, therefore, the removal of barriers to border crossing – such as visas or tedious and lengthy border controls – has opened access to larger, wealthier regions across the border (for example, in Germany and Greece) for western-located border regions. Activities that demand fewer skills, such as petty trading, have almost faded away as a result of increased competition. In Petrich, petty trading currently provides only a small addition to low-income households (10–40 percent). Similar remarks were made by petty traders in Zgorzelec:

‘sales of mushrooms are an additional source of income for me, but there are no big profits from it, you just “make some money”. It is hard to evaluate the contribution – certainly it is not much.’ (Zgorzelec, Household 13)

Or, as this other respondent states: ‘trade gives me little profit, but since I have plenty of free time and a low pension I want to spend my time trading to get additional income’ (Zgorzelec, Household 14).

Where the ability to take the risks related to crossing the border is the only ‘competitive advantage’ of the informal entrepreneur, the likelihood of household entrepreneurial activities disappearing is high. Some petty traders evaluated EU enlargement as markedly negative for cross-border trading. One respondent in Petrich, for example, did not see any prospects for cross-border IEAs because ‘profits from IEA have decreased, the market is harder to please and the competition is intensifying’ (Petrich, Household 10). A trader in Serres mentions that:

‘Currently, 30 percent of my income comes from business with Greece. Some years ago, it was 50 percent. When I first began this business it was 100 percent. Business is not so easy any more. There is competition now. Because many people buy from Greece to sell in Bulgaria, you have to lower the price. Also, the prices of the products are now higher in Greece.’ (Serres, Household 1)

Similarly, a Bulgarian petty trader states:

‘The free access of all Bulgarian residents to go shopping in Greece has led to the fading away of petty trading of food and beverages. Since January 2007, an increasingly large number of households from the Petrich region travel to Greece almost every week to buy goods from the so-called “discounters” – for example the German discount market chain Lidl.’ (Petrich, Household 2)

On the positive side, whereas the primary purpose of most petty trade activities is the generation of income, regional characteristics such as entrepreneurial propensity, soft borders and wealthy neighbouring areas can induce more substantial forms of entrepreneurial activity. Cross-border IEAs offer good opportunities for many people to learn to trade (Welter et al., 2008). When this newly acquired skill is coupled with good economic opportunities across the border, it facilitates the routinization and institutionalization of entrepreneurial practices (Welter and Smallbone, 2009). This is part of a process that starts with recognizing opportunities in a cross-border activity, realizing such ideas through cross-border petty trading activities, and building up a more substantial business over time (Welter et al., 2008), as was found in the case of soft border regions such as Petrich, Serres or Zgorzelec.

The development of these more substantial forms of enterprise by petty traders is illustrated by a household that currently imports processed olives from Greece. The entrepreneur’s intentions are to import unprocessed olives directly from Greek producers, to process them in Bulgaria and to distribute them in the local market in Petrich through a firm specifically registered for this activity (Petrich, Household 6). Another respondent in Serres explains:

‘I buy from Greece and I sell in Bulgaria. I bring aluminium and plastic products. I find things that cost €25 in Greece but €50 in Bulgaria . . . EU enlargement helped my business a lot. It is easier because of the border and the new border situation between Greece and Bulgaria . . . Yes, I’ll set up a company soon . . . In the past, the Greek police frequently stopped me for controls. Now it is easier. We don’t have problems at the borders. They don’t check you that much.’ (Serres, Household 1, Bulgarian)

This boost in petty trading activities at the Bulgarian–Greek border was also a consequence of the decline in agriculture in the region caused by the seasonal emigration of Bulgarian agricultural workers to Greece, a trend that the EU enlargement was expected to further enhance since Bulgarian workers prefer the higher pay offered in Greece for activities such as harvesting agricultural products (Todorov and Kolarov, 2008).

The softening of borders and the decreased viability of petty trading has opened up other new economic opportunities, often of a more rewarding nature, in the provision of cross-border services that take advantage of the differences in labour costs. This was especially the case in Zgorzelec in Poland, where household IEAs in services (for example, hairdressing, beauty treatments, cleaning and care of the elderly) were mainly initiated after the softening of borders in 2004 led to increased demand from the wealthier German cross-border market. One respondent in Zgorzelec (Household 10) offers domestic cleaning services to families in Germany. A colleague of her husband was looking for someone and she took the opportunity. Up until then she had been a full-time mother. The respondent has been doing this for three years – initially for one family and now, after recommendations, for five others. As she mentions:

‘The goal of this cooperation is to make money and new acquaintances (they may be useful in the future). The families I clean for pay on time and this fact makes me willing to cooperate with them. A nice atmosphere at their homes is also important. Recently, I have also taken up ironing shirts; so I have a lot of work now and I earn more, too.’

Another household (Zgorzelec, Household 7) offers tailoring services. The female entrepreneur has several customers in Germany. She started this activity five years ago after a friend of hers brought a cousin from Görlitz who wanted a tailored dress. Afterwards, through word of mouth she acquired other customers. She is involved in this activity to make profits; because the number of customers has increased she is thinking of registering the enterprise and hiring an apprentice to help.

The evidence shows that the softening of borders, especially for border regions with a western location, has offered good opportunities for many households to engage in more rewarding forms of IEA and/or to use the skills learned through cross-border IEAs to create a more substantial enterprise in the formal economy. This gives support to arguments about the regional developmental role of cross-border IEAs (Welter and Smallbone, 2009; Williams et al., 2010). A high incidence of informal activities in the services sector was also evident in these regions, developed in response to the higher demands of the more economically developed regions across the border and reflecting views that urban actors engage in more positive practices (Smith and Stenning, 2006). Thus, entrepreneurial activities, both formal and informal, play a more important role in regional development in ‘softer’ borderlands, although the net effects of such activities for borderlands require more scrutiny.

Conclusions

Our aim in this paper has been to explore the difference that the geography of borders, broadly defined, has made to the diversity and persistence/disappearance of cross-border IEAs since EU enlargement, and the implications for the development of borderlands. Borderlands have come to greater prominence as objects of study as a result of the spatial changes brought by EU enlargement and the change in the status of many borders. As spaces for various forms of entrepreneurial activity, borderlands have offered rich examples of IEA such as petty/shuttle trading that depend on the border location to be developed and sustained. Although the socioeconomic contributions of informal activities have been widely acknowledged, little research has been conducted on the ways in which enlargement has affected the nature and extent of cross-border IEAs in Europe. Data from EU border regions point to the significance of IEAs in these regions. Cross-border IEAs developed in response to the regional disparities and social inequalities experienced during the post-communist transformation period. The limited outreach of regional policies made IEAs’ role essential for individual survival, as well as in building up the necessary skills, knowledge and capital to make the transition to the formal economy.

The EU integration process of post-communist countries and their consequent enlargement has reduced the attractiveness of cross-border IEAs as a means of increasing/sustaining a decent livelihood because of the convergence of prices and changes in the status of borders that facilitated/constrained border interactions. This suggests that cross-border IEA is a transient form of entrepreneurial activity in these regions. The evidence presented in this paper, however, has shown that enlargement has had varying effects on cross-border IEAs, mainly because of a number of regional characteristics such as economic development on both sides of the border, sociocultural proximity and, most importantly, the status of borders. The paper has indicated that IEAs in border regions have a time dimension, reflected in the pre- and post-enlargement changes to the intensity of these activities, as well as a regional dimension, reflected in various dichotomies such as impoverished/affluent, socioculturally proximate/distant and hard/soft border, evidenced in the forms, enablers and constraints of such activities.

In less developed areas along the eastern borders of the EU, cross-border IEAs are performed by individuals/households out of necessity, often as a reactive or defensive strategy, and they have only a limited role in contributing to the local economic development of these regions. Most importantly, the hardening of borders altered the power relations in border regions, changing petty trading practices as well as the necessary resources – time, visas, extended social relations – required to carry them out. As a result, the sociocultural context, which consists of not only the traditional network of friends, family or other ethnic links but also shared historical experiences and hardships during the transformation period, has been crucial. In better-developed borderlands in the EU core, the EU enlargement has opened up new economic spaces for utilizing the skills and capital developed from cross-border IEAs for more substantial forms of entrepreneurial activity, formal or informal.

The empirical evidence presented on borderlands contributes to a better understanding of the diversity of economic practices in contexts undergoing major economic and institutional change. It illustrates how the spatial, economic, institutional and sociocultural characteristics of a context overlap, dominate or recede at different points in time to facilitate/inhibit different forms of entrepreneurial behaviour and to encourage the involvement of, or empower, different groups of people. Thus, context, in all its dimensions, remains an important factor for spatial and temporal explanations of cross-border IEAs as particular forms of entrepreneurial activity.

From a practical point of view, a better understanding of the temporal and regional dimensions of cross-border IEAs can help in the design of appropriate and informed regional policies that can support the development of formal entrepreneurial activities in EU border regions. Equally important, a better understanding of these issues can inform the full implementation of the Schengen acquis in Bulgaria and Romania, as well as the subsequent enlargement of the Western Balkans, and the implications for the different types of entrepreneurial activity evident in the border regions of these countries.

Footnotes

Appendix

Appendix 1

Sample characteristics.

Country investigated	Case-study region	Type of border	Bordering country	Number of interviews
Poland	Zgorzelec	Internal/soft	Germany	15
	Biała Podlaska	External/hard	Belarus	15
Estonia	Ida-Viru	External/hard	Russia	10
	South East Estonia	External/hard	Russia	10
Greece	Florina	External/hard	FYROM	21
	Serres	Internal/soft	Bulgaria	11
Bulgaria	Petrich	Internal/soft	Greece	10
	Kyustendil	External/hard	FYROM	8

Funding

This work was supported by the European Community under the FP6 ‘Integrating and Strengthening the European Research Area’ Programme (CBCED, Contract Number 029038).

Notes

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