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Impacts and Motivational Factors for Foreign Equity Investments in the Croatian Trade Sector

The present chapter examines the antecedents and consequences of foreign equity investments in the Croatian trade sector. Specifically, it focuses on the following research questions: (1) What are the effects of foreign investment on the Croatian trade sector? (2) What motivates foreign investment? (3) What are the major obstacles facing foreign investors? (4) How does government policy influence the investment climate? The study builds on the theory of FDI, and “ push” and “ pull” retail internationalisation factors. Regression model was used to examine the relationships between variables, while motivational factors and obstacles were identified, based on a questionnaire carried out in the Croatian trade sector. As the research results for the 1993-2002 period indicate, foreign equity investment was positively related to the gross fixed capital formation and trade sector’ s value added. Fierce competition induced by FDI was a major driver explaining new investments, an increase in employment and wages and also the growth in imports. Major factors attracting FDI were Croatia’ s geographical proximity to the home countries of foreign investors, stable macroeconomic policy, a relatively underdeveloped market and ample labour supply. On the other hand, small market, low income and drawn-out bureaucratic procedures for setting up a business, rigid zoning and opening hour’ s regulations were identified to be major obstacles for FDI. Research results might be useful for policy makers in creating a competitive environment, conducive to new investment and faster long-term sector’ s growth.

Croatian trade sector, foreign equity investments, motivational factors, obstacles, retail internationalisation, competitive environment

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