Economic growth and foreign direct investment in Balkans

Abstract

Foreign direct investment (FDI) has become a key source of economic growth for the Balkan countries, offering vital funding for development initiatives. Therefore, the purpose of this study was to examine the dynamics of FDI in Serbia, North Macedonia and Montenegro from 2000 to 2023. An econometric model was used to conduct the research, namely, the relationship between FDI and economic growth in the region was analysed. A multiple regression model was developed that includes gross domestic product growth as the dependent variable. It was established that significant fluctuations in the rates of economic growth are characteristic of all three countries during this period. Serbia has shown particular resilience, with positive growth rates prevailing in most years. Key sectors attracting FDI were also identified, including services, manufacturing, automotive, IT, agriculture, energy and tourism. The obtained results emphasised the importance of reforms aimed at business development, infrastructure development and regional integration, especially with the EU, as critical factors in attracting FDI. In addition, diversification of FDI sources was emphasised with increased investments from China, Turkey and the United Arab Emirates, which complement traditional investors from the EU. More than 60% of foreign investment in Serbia has been found to be concentrated in the services sector, while North Macedonia has successfully attracted investment in high value-added industries such as information technology and engineering. These findings are consistent with established economic theories about the impact of FDI on growth, while providing specific insights into the Balkan context. It found that a 1% increase in FDI was associated with a 0.3-0.5% increase in gross domestic product in the Balkan countries studied. The obtained results can become the basis for future political decisions and investment strategies in the region