Overview of Foreign Direct Investments in Bulgaria in the Middle of the 1990s

Abstract

By the middle of the 1990s, the reforms in Bulganra had not yet solved many of the problems of stabilization and of restructuring the economy. Privatization as the main means for changing the ownership structure had been delayed, and its effects were therefore still in their early stages. Although foreign participation in the process of transformation was expected to be of importance for supplying the country with a new pattern of behavior from the very beginning of the reform at the end of the 1980s, by the mid-1990s it was still negligible. Foreign direct investment (FDI) was far below anticipated levels and its role in, and effects on, the economy in the mid-1990s was therefore barely visible. Signs of an economic revival in late 1994 and 1995 turned into a deeper crisis in 1996. Despite Bulgaria's comparative advantage due to its location in the Balkans, it is still far from achieving the levels of FDI taking place in the other Central and East European countries. This article aims to analyze the development of FDI in Bulganra since the start of the reform in 1991 to the middle of the 1990s. An explanation is sought for the delay in foreign investment in the country, contrary to the expectations of both the govemment and the population, by looking at stable macroeconomic policy, restructuring, and privatization as prerequisites for attracting FDI. The main characteristics of the economic environment are therefore first outlined. Second, the methodology for compiling foreign-investment statistics in the country is presented. After the definition of FDI is clarified, the institutional and legal frameworks of FDI activities are analyzed. Finally, the develop