The Effects of Foreign Direct Investment Flows in Developing Process of Countries of Western Balkan

Abstract

Following a period of isolation up to 1990-s, in an era of transition, WB countries faced tough challenge of achieving a market framework and integration their economies with the rest of the world. The early years of transition were characterized by decentralizing their economies and intensified efforts to attract Foreign Direct Investment (FDI). This issue is particularly important in terms of the global economic crisis, when FDI was recognized as one of the key generators of recovery of the economy of many countries. The paper examines the trends in FDI flows and its economic, social and environmental impacts in host countries.Establishment of the legal, macroeconomic and institutional framework provide the necessary impetus towards FDI inflows also it is a necessary condition of development of industry and reintegration into global economic flows. Unfortunately, unlike the countries of Central and Eastern Europe, in terms of destination of FDI, WB is less targeted region. FDI inflows in the region of WB, neither in scope nor the structure was not sufficient for the restructuring of economic activities and increase export competitiveness. The entry of FDI in transition economies was caused primarily by the privatization process.The purpose of this paper is to present a comparative analysis of the effects of FDI on economic development selected economies of WB region. Also it analyzes the ongoing trends in attracting FDI also it draws attention to their importance for the accelerated economic development in the future. In our analysis we use annually data series which are sourced from the following IMF databases: UNCTAD, World Bank, from the national central banks, their annual reports. The data covers the period between 2006-2011 and included 6 countries of Western Balkan (WB): Albania, Bosnia and Herzegovina, Croatia, Macedonia FYR, Montenegro, and Serbia.The paper is divided into five sections. Section 2 analyzes the impact of capital account liberalization on the economy of WB countries, then following analyze position and characteristics of business environment and competitive position of selected economies. Section 4 gives an overview of the FDI inflows and and issues related to FDI attraction.The findings and discussion presented in previous sections of this article ends with conclusions that greater inflow of FDI could affect the change in the structure of production and exports of WB countries, and thus to increase the competitiveness of domestic companies in foreign markets.