‘FDI has not assisted the early transition, but it has come as the proof of the success of reform rather than as a catalyst of growth. [Put another way] FDI per capita and growth are positively correlated, but rather than improving the investment climate, FDI requires that the investment climate is already good’ (Åslund 2002 p.434). The purpose of this chapter is to examine the relationship between FDI and the processes of economic transformation in CEE (adopting the UN definition to cover the 19 transition economies listed in Table 1.1); thereby setting the scene for the more specialist and regionally oriented chapters that follow. To achieve this aim, the chapter is divided into six sections. Following this brief introduction, I turn back the clock to consider the role that East-West trade played in the Soviet period and the institutions that were created to manage foreign trade under central planning. The next section considers the theoretical relationship between FDI and economic transformation. It is shown that ‘internationalisation’ was seen as an essential component of ‘economic transition’ and that substantial inflows of FDI are therefore a measure of success, or as the EBRD terms it ‘progress’. The following section turns to consider the actual pattern of FDI in CEE, the region’s role in global FDI, the distribution of FDI within the region and its economic significance to the host countries. The final substantive section seeks to explain this pattern of FDI in terms of motivations and barriers. The chapter concludes by identifying key issues for further consideration in other thematic chapters and regional case studies.