Abstract
The paper concentrates on the analysis of inward and outward FDI in the BSEC countries, their structuring by countries of origin and destination, and how the investment climate (in particular economic freedom and economic development) affects the actual FDI influx in the region. The BSEC countries became considerably attractive for FDI at the beginning of the 2000s, and now they receive about 4% of the world FDI. All the BSEC countries are net recipients of FDI, but some of them also actively invest abroad. Most FDI to the region originates in Europe. FDI is the most important for several small BSEC economies, especially in some periods when they made a significant contribution to capital formation. Despite a temporary increase in imports, FDI also helped to stabilize the balance of payments. Most BSEC countries usually outperform average countries worldwide by trade freedom, low tax burden, fiscal health, financial freedom, property rights, and low inflation. However, this group of countries is quite diverse by particular indicators. Corruption and excessive regulations often act as the drawbacks for the investment climate. The overall economic freedom and low tax burden are the strongest determinants of inward FDI to the BSEC countries. Improving the overall economic freedom, protecting property rights, and better control over government spending are the most crucial for stimulating economic growth. Economic growth and trade freedom are less important factors for FDI.
Highlights
BSEC unites countries of various development levels, with cross-membership in other blocs, net FDI recipient countries, and countries that are both active recipients and exporters of investments
The BSEC countries became quite attractive for FDI at the beginning of the 2000s and receive about 4% of world FDI
All the BSEC countries are a net recipient of FDI, but some invest abroad actively (Russia, Azerbaijan – by the absolute values and relatively their GDP; Turkey and Greece – by the absolute values only)
Summary
BSEC (the Black Sea Economic Cooperation) unites countries of various development levels, with cross-membership in other blocs, net FDI recipient countries, and countries that are both active recipients and exporters of investments. The organization consists of both countries located at the Black Sea shore and other neighboring states interested in cooperation within a wider Black Sea area. Some investment projects are of mutual geopolitical interest, but competition between the member states exists. Despite the existence of intra-bloc FDI, most foreign investment comes from the outside, but still mainly from Europe. The research on FDI in the BSEC countries mainly concentrates on trends, determinants, and effects of FDI, but usually, the analyzed countries fall into different groups in another way. Selecting the analyzed period may influence the results
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