FDI’s Impact on Transitional Countries, Serbia as a Rational Choice: The FIAT-ZASTAVA Case

Abstract

The privatization process and foreign direct investments (FDI) are among the most important economic issues in transitional countries. FDI has enormous influence on transitional countries that need serious structural changes. In this paper we will study FIAT’s decision to invest in the Serbian automotive industry. We will try to rationalize FIAT’s decision because Serbian car manufacturer ZASTAVA was not the only alternative for FIAT to invest in the Balkans. In order to justify FIAT’s decision we will apply the Mullins model of horizontal and vertical FDI, examine the importance of the cooperating history between two car manufacturers and compare macroeconomic conditions and Global Competitiveness of Serbia and Romania, which was the main alternative for FIAT. Finally, we will also try to explain why FIAT decided to announce the investment at the end of political campaign in Serbia when pools gave anti-European parties higher chances for victory, instead of waiting to see the outcome of the elections.