engleski

Main determinants of foreign direct investment in the South East European countries

The growth of foreign direct investments (FDI) in the world has been significant in recent years. Between 1990 and 2000 worldwide FDI inflows increased more than five times, and since 2000 they have declined. During the period of FDI expansion, growth was especially strong from 1997 onward. However, most of the FDI transactions were between the developed countries. The distribution of FDI is unequal and less-developing countries face difficulties in attracting FDI. Despite the fact that FDI is increasingly important to developing countries, over the past few years the share of the developing countries in worldwide FDI inflows has been declining. The paper analyses geographical and sector distribution of FDI in the Southeast European countries (SEEC) and compares its amount with that in Central East European countries. According to economic theory, FDI towards developing countries flows for labor-intensive and low-technology production, while towards developed states, it flows for high-technology production. Identification of determining factors of FDI is a complex problem which depends on several characteristics specific for each country, sectors, and companies. All those factors could be grouped in three broad categories: economic policy of host country, economic performance, and attractiveness of national economy. On the desegregated level, FDI depends on size and growth potential of a national economy, natural resources endowments and quality of workforce, openness to international trade and access to international markets, and quality of physical, financial, and technological infrastructure. An important question is how SEEC can attract more foreign investment. To find the answer, this paper uses data on FDI inflows to SEEC to determine the main host country determinants of FDI and provides regression-based estimation of determinants of FDI. Using a sample of SEEC and panel data techniques, the determinants of FDI in this part of Europe are investigated. The paper researches the relationship between FDI, GDP, GDP per capita, number of inhabitants, trade openness, inflation, external debt, and information and communication technology sectors. For SEEC, FDI inflows are largely dependent on the completion of the privatization process and in this paper we include the level of private sector and privatization as explanatory variables. Our findings suggest that certain variables such as privatization and trade regime, as well as the density of infrastructure, appear to be robust under different specifications. A positive significance of the agglomeration factor is also observed, confirming the relevant theoretical propositions. However, certain differential variables, such as the privatization, could not be fully captured due to the statistical homogeneity of the sample.

determinant; foreign direct investment stock; foreign direct investment

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