The determinants of FDI location choice in the Western Balkan countries

Abstract

ABSTRACT This paper examines the effects of traditional, institutional and agglomeration determinants on the choice of FDI location on a sample of six countries of the Western Balkans. We used the partial adjustment model, the static and dynamic panels, the Generalised Method of Moments (GMM) and a time series from 2007 to 2017. We have found that traditional (GDP per capita and GDP growth rate), agglomeration (urbanisation rate, foreign agglomerations in the service sector and the number of employees in the service sector) and institutional determinants (government spending) have a positive impact on the choice of FDI location. Additionally, we have concluded that the above-mentioned determinants have a positive impact on the adjustment speed towards a balanced per capita FDI stock. There is no convergence with regards to FDI; however, convergence exists with regards to the unrealised FDI stock due to the equilibrium FDI convergence.