FDI in Bosnia & Herzegovina

Abstract

Similar to other Western Balkan (WB) countries, Bosnia & Herzegovina (BiH) started its transition toward a market-oriented economy in the mid-1990s. However, unlike most WB countries, BiH entered the transition shock and process with significant economic, human, and infrastructural losses that were a result of the war in BiH that lasted from 1992 to 1995. Following Dunning’s O-L-I framework, this chapter investigates dynamics of foreign direct investment (FDI) flows to BiH including their industrial structure and that led to the current cumulative FDI situation. Because most of the available FDI literature analyzes inflows to BiH together with other WB or Southeastern European (SEE) countries, the purpose of this research is also to make a scholarly contribution that focuses exclusively upon BiH. Like most WB countries, BiH too faced two distinct periods of FDI inflows, which are analyzed here as pre- and post-global financial crisis of 2008. The results of our analysis show that BiH should put more effort into attracting FDI because in most cases foreign capital improves the country’s macroeconomic conditions. In conclusion, prospects are set forth for FDI inflows to BiH over the next decade, along with suggestions and recommendations to achieve greater FDI inflows into BiH.