The impact of state regulations on foreign direct investment flows in the Western Balkans

Empirical relationship between Foreign Direct Investment and Economic Variables of Pakistan

Nearly all developing countries actively seek capital and technology from the advanced countries. Although private direct foreign investment (mainly in the form of multinational enterprise) is viewed with ambivalence by many developing countries, it is nonetheless true that direct investment remains a substantial source of capital and is sometimes the only source of specific technologies. Indeed, given the slow growth in official external assistance, developing countries are becoming more, not less, dependent on direct foreign investment. While disbursements of official development assistance by the OECD countries rose 43% from 1961 through 1970, direct investment flows rose almost 90% over the same period. In the later year, the flow of direct investment was more than two-fifths of all official assistance, $3.2 billion compared to $7.8 billion.1 Furthermore, the United States and other major capital exporting countries would prefer, for economic as well as ideological reasons, to channel more of their capital outflows to developing countries through private investment. It is highly probable, therefore, that developing countries will continue to rely on direct foreign investment in the foreseeable future to carry out their development programs. It is against this background that the present study seeks to identify the empirical determinants of direct foreign-investment flows in the manufacturing sectors of developing countries. Our purpose is to select from the many economic, social, and political features of a developing country those features that are critical to making that country attractive or unattractive to private foreign investors. Available empirical studies are limited

PurposeThis paper aims to empirically investigate the factors attracting foreign direct investment (FDI) inflows into emerging economies.Design/methodology/approachThis study uses secondary data from the World Bank and the Global State of Democracy Indices of 16 West African countries (WACs) over the period from 1989 to 2018. Fixed- and random-effects econometric regression models are used to assess the nexus between 12 macroeconomic indicators (including political risk and cultural factors) and FDI inflows into WACs.FindingsThe critical drivers of FDI inflows into WACs are the richness of natural resources, market size or gross domestic product (GDP), imports and exports of goods and services, trade openness and the currency's strength as measured by the exchange rate. The result also reveals that French-speaking countries attract more FDI than other English-speaking countries. The previously cited determinants of FDI, such as infrastructural development, inflation, tax and political stability, are insignificant in determining FDI inflows into WACs.Originality/valueThis study uncovers the critical drivers explaining the FDI inflows into WACs, where FDI accounts for 39% of external finance. The study's contribution is that Francophone WACs attract more FDI than Anglophone WACs. The most important drivers of FDI are abundant natural resources, GDP, imports, exports, trade openness and exchange rate.

Foreign direct investment (FDI) plays a crucial role in the growth and development of transitional economies and especially in countries where domestic capital is insufficient to meet the investment needs of the economy. Albania is a country applying for E.U. integration, so the country's central policies in recent years have brought about a liberalized economic framework and improved conditions for business development, attracting highly sought after FDI. This paper will provide an analysis of FDI in Albania and make a comparative analysis with the Western Balkan (W.B.) countries. The focus of the paper will also be on analyzing some of the critical elements that make these countries attractive to FDI, such as: analyzing the sectoral distribution of FDI stocks, the impact that inflows have had on the development of domestic economies, in creating jobs. FDI flows even though they have been in an upward trend, have not yet reached the desired expectations levels. W.B. countries have some very potential sectors to increase in the future and to be more attractive for FDI, such as tourism, service, transport, agriculture, industry. FDI had a positive impact on Albania's economy and in other Balkan countries. However, the region still needs to make many improvements in implementing institutional reforms, building and operating democratic institutions, improving the infrastructure. All countries need to collaborate to enhance political instability, resolve conflicts, and to focus on improvements and policies to attract potential investors.Implications for a Central European audience: This paper aims to contribute to increasing the knowledge about the opportunities and potential sectors to invest in the W.B. area. The article may make a positive contribution to the Central European businesses generally and especially to firms that are interested in investing their capital in W.B countries or scholars who currently study the effects of FDI in developing countries. There is an analysis of how public policies can further increase the attraction of FDIs, which is beneficial for public officials aspiring to absorb foreign investments in their area of oversight. The optimal geographical position of Albania and W.B. countries has played an essential role in attracting foreign investments for neighbouring countries and especially European Union countries. Central European countries such as Hungary, Austria, and Switzerland are leaders or significant investors in the region. The distance between host and recipient countries have been a dominant factor of FDI, as well as cultural and linguistic resemblances.

This paper investigates the impact of trade liberalization on foreign direct investment (FDI) inflows and economic development in the Czech Republic. Utilizing a mixed-methods approach, the study combines quantitative econometric analysis with qualitative case studies and interviews. The empirical results demonstrate a significant positive correlation between trade openness and FDI inflows, indicating that a 1% increase in trade openness is associated with a 0.5% increase in FDI inflows. Furthermore, the structural equation modeling (SEM) results reveal that a 1% increase in FDI inflows is associated with a 0.3% increase in GDP growth and a 0.2% increase in employment rates. These findings underscore the critical role of an open trade environment in attracting foreign investment and fostering economic development. The study also highlights the importance of other factors such as institutional quality, political stability, and infrastructure development in creating a conducive environment for FDI. Policy implications suggest that maintaining open trade policies, improving institutional frameworks, and investing in infrastructure and innovation are essential strategies for achieving long-term economic development in the Czech Republic and similar transition economies.

This paper investigates the relationship between foreign direct investment (FDI) and institutional quality measures (control of corruption, political stability, and rule of law) in the Western Balkans. The empirical study is based on panel techniques (unit root tests and causality) in the period 2002–2017. The results indicate that control of corruption, political stability, and rule of law cause an inflow of FDI at the Western Balkans. The bidirectional relationship has been found between political stability and rule of low, control of corruption and rule of law, and control of corruption and inflow of FDI. Thus, the study recommended that stronger institutional measures cause a higher inflow of foreign direct investments.

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.

During the liberation war in 1971 a nationalist weave emerged which gives Bangladeshis a spirit of freedom and dignity of independence but it also results on more reserved position in case of economic policy. Policy makers at that period used to see foreign companies access with a negative eyes. Foreign investments were discouraged as a result foreign direct investment (FDI) inflow in Bangladesh till 1980 is very insignificant. The growth of Bangladesh's FDI inflow was around US$ 308 – 356 million for long fifteen years (1980 – 1995) which started with an amount of US $ 0.090 million in 1972. Afterwards this concept has been changed into a reverse position and government start encouraging foreign direct investment from 1990s. A series of policy incentives, investment sovereignty has been offered to the FDI investors including tax holiday for several years, duty free facility for importing capital machinery, 100% foreign ownership, 100% profit repatriation facility, reinvestment of profit or dividend as FDI, multiple visa, work permit to foreign executives, permanent resident or even citizenship for investing a specific amount, Export Processing Zone (EPZ) facility, and easy hassle free exit facility. Potential sectors of can attract more FDI are power generation, infrastructure development, private port establishment, joint venture with deep sea port establishment under PPP, ship building, ICT sector, call center, education, healthcare, mining, gas extraction, agro processed product, electrical & electronics, light engineering, and fashion designing etc. After so many incentives offered by the government till now FDI Inflow into Bangladesh is not at a satisfactory level. During last few years fresh FDI investment in not taking place. From the statistics of last few years it is quite clear that, reinvestment of locally earned profit is the major amount of FDI into Bangladesh. Fresh FDI inflow is decreasing day by day. Government has to investigate the issue and undertake necessary measures to increase fresh FDI into Bangladesh.

During the liberation war in 1971 a nationalist weave emerged which gives Bangladeshis a spirit of freedom and dignity of independence but it also results on more reserved position in case of economic policy. Policy makers at that period used to see foreign companies access with a negative eyes. Foreign investments were discouraged as a result foreign direct investment (FDI) inflow in Bangladesh till 1980 is very insignificant. The growth of Bangladesh’s FDI inflow was around US$ 308 – 356 million for long fifteen years (1980 – 1995) which started with an amount of US $ 0.090 million in 1972. Afterwards this concept has been changed into a reverse position and government start encouraging foreign direct investment from 1990s. A series of policy incentives, investment sovereignty has been offered to the FDI investors including tax holiday for several years, duty free facility for importing capital machinery, 100% foreign ownership, 100% profit repatriation facility, reinvestment of profit or dividend as FDI, multiple visa, work permit to foreign executives, permanent resident or even citizenship for investing a specific amount, Export Processing Zone (EPZ) facility, and easy hassle free exit facility. Potential sectors of can attract more FDI are power generation, infrastructure development, private port establishment, joint venture with deep sea port establishment under PPP, ship building, ICT sector, call center, education, healthcare, mining, gas extraction, agro processed product, electrical & electronics, light engineering, and fashion designing etc. After so many incentives offered by the government till now FDI Inflow into Bangladesh is not at a satisfactory level. During last few years fresh FDI investment in not taking place. From the statistics of last few years it is quite clear that, reinvestment of locally earned profit is the major amount of FDI into Bangladesh. Fresh FDI inflow is decreasing day by day. Government has to investigate the issue and undertake necessary measures to increase fresh FDI into Bangladesh.

Foreign Direct Investment (FDI) is widely acknowledged as a crucial catalyst for economic development, especially in emerging economies such as Pakistan. Its significance lies in the fact that it can introduce vital funds, fresh technologies, and know how to domestic markets. These advantages can stimulate progress and generate novel prospects for enterprises and individuals alike. Over the past few years, there has been a resurgence of interest in the significance of FDI in promoting economic growth. Global leaders are now more inclined to lure foreign investments to enhance their economies and raise the standard of living of their people. Foreign Direct Investment (FDI) has played a critical role in driving Pakistan's economic progress and development. The State Bank of Pakistan reports that FDI inflows saw a significant increase of 137% in the fiscal year 2020-21, amounting to $2.78 billion, demonstrating the country's concerted efforts to attract foreign investment in key sectors like energy, telecommunications, and construction. Our study aims to provide empirical evidence of the relationship between FDI and economic growth in Pakistan. We analyzed data spanning two decades, from 1996 to 2022, and examined the impact of FDI on Gross Domestic Product (GDP), while also considering various other factors such as political stability, terrorism, and trade openness. 
 Our findings indicate a favorable influence of FDI on economic growth in Pakistan, particularly when coupled with liberalized trade policies. We observed a strong positive correlation between FDI inflows and GDP growth, indicating that foreign investment can serve as a potent driver for economic development. However, our analysis underscores the significance of other factors in augmenting economic growth in Pakistan. For instance, political stability emerges as a pivotal factor affecting FDI inflows and can be instrumental in attracting foreign investment. Similarly, the implementation of effective measures to combat terrorism can establish a secure and stable environment for businesses, thus fostering economic growth. In conclusion, our research provides empirical evidence of the positive impact of FDI on economic growth in Pakistan. However, it also underscores the importance of creating a supportive environment for foreign investment, including open trade policies, political stability, and effective measures to combat terrorism. By doing so, Pakistan can continue to attract foreign investment and accelerate its economic development

Foreign direct investments are potentially very important for each country as they could significantly contribute to its economic development. The importance of foreign direct investments reflects in their ability to contribute to development of comparative advantages and competitiveness. In the last 20 years, WB countries have tried to attract as many foreign investors as possible using various policy incentives. Foreign direct investment inflows followed the pace of economic transformation and reforms towards a market economy, leading to economic growth. The aim of this paper is to analyse characteristics of the inflow of foreign direct investments in the Western Balkans (WB) countries, as well as the impact they might have on their economic growth and development. In order to determine the amount of foreign direct investments, but also the position, ie. competitiveness of each of the observed countries, there have been used secondary data from the official UNCTAD reports. The paper will also present an analysis of the greenfield investments for selected economies, as very important type of foreign investments that probably have the largest positive spillovers. The time period covered by this research was from 2010 to 2019. The results of the conducted research indicate that Serbia is the most attractive investment destination, considering that in the observed period, more than 60% of the total amount of foreign direct investments that were directed to the countries of the Western Balkans ended up on its territory.

This paper investigates the impact of real effective exchange rates (REER), both in terms of levels and volatility, on foreign direct investment (FDI) inflows for a panel of 35 Indian sub-national economies over the period 2000-2013. In light of the asymmetric distribution of FDI inflows within India, we focus on examining the nexus between FDI inflows at the sub-national level and India’s competitiveness captured by REER. Our empirical analysis reveals that movements in REER have a significant and negative impact on FDI inflows, while REER volatility is found to be inducing FDI. Our results are suggestive that FDI inflows into India are largely domestic market oriented in nature. Purpose: In light of the asymmetric distribution of FDI inflows within India, we focus on examining the nexus between foreign direct investment (FDI) inflows at the sub-national level and India’s competitiveness captured by real effective exchange rates (REER). This paper investigates the impact of REER, both in terms of levels and volatility, on FDI inflows to 35 Indian sub-national economies over the period 2000-2013. Research Methodology: To examine the impact of REER on FDI inflows, we compile a panel dataset for 35 sub-national economies covering the time period 2000 to 2013. We employ panel fixed effects models to explore our relationship of interest between REER and FDI, controlling for other characteristics specific to a sub-national economy.Findings: Our empirical analysis reveals that movements in REER have a significant and negative impact on FDI inflows, while REER volatility is found to be inducing FDI. Our results are suggestive that FDI inflows into India are largely domestic market-oriented in nature. Originality/Value: Considering that India’s FDI inflows exhibit significant concentration patterns among selected regions, we exploit this heterogeneity at the sub-national level to empirically understand the determinants of FDI, with a particular focus on cost competitiveness as captured by REER. The extant literature has not explicitly focused on testing the impact of REER both in terms of its levels and volatility on FDI inflows to India at the sub-national level, especially not at the sub-national level. While admittedly the exchange rate varies only at the national level, the value-addition comes from understanding its interaction with state-varying macroeconomic indicators.

A country’s political stability and trends in economic growth are important factors to attract foreign investment. Most developing countries struggle to achieve political stability and high levels of growth. Due to these issues, developing countries attract limited foreign investment. Applying the Bounds test for cointegration, an ARDL model was utilized using time series data from 1995 to 2016, this study examined the potential impact of political risk and gross domestic product (GDP) on foreign direct investment (FDI) flows to the South Africa. Findings of the study revealed that in both short and long run, political risk and economic growth affect the level of foreign direct investment. The political risk rating was found to have a higher impact on FDI flow if compared to GDP. The lower the political risk level (resulting in a highly rated index), the higher the level of FDI inflows. Using the Granger causality approach, empirical results indicated a bi-directional causal relationship between FDI and economic growth, while it was found that political risk causes changes in FDI. In other words, individually, political risk and gross domestic product cause changes in FDI. Based on the study findings, it is imperative for the South African government to reduce the level of political risk in order to increase foreign investment into the country which, in return, could assist in economic growth and welfare.

PurposeThis study aims to validate the hypothesis that a country’s preparedness for epidemics and pandemics, as measured by the GHS Index, significantly influences inward FDI inflows. By examining panel data from 2019 to 2021, the research seeks to elucidate the impact of heightened epidemic and pandemic preparedness on investment behavior, thereby highlighting the importance of health resilience and preparedness in attracting foreign investment and fostering economic growth and development.Design/methodology/approachThe study uses panel data spanning 181 countries from 2019 to 2021 and uses logarithmic regression models to analyze the impact of a country’s preparedness for epidemics and pandemics, as measured by the Global Health Security (GHS) Index, on inward Foreign Direct Investment (FDI) inflows. Auxiliary variables including GDP, labor supply, openness rate, inflation rate and political stability are incorporated. Robust weighted least squares estimation techniques are used to account for potential heterogeneity and panel data characteristics.FindingsThe study reveals a consistent and statistically significant positive relationship between a country’s GHS score and inward FDI, indicating that destinations with robust health systems are more attractive to investors. Higher GHS scores correlate with reduced investment risk, improved business continuity during health crises and enhanced health-care infrastructure, leading to a healthier and more productive workforce.Research limitations/implicationsWhile the study provides valuable insights into the relationship between epidemic and pandemic preparedness and inward FDI inflows, several limitations exist. The analysis relies on cross-sectional data from a relatively short timeframe (2019–2021), limiting the ability to capture long-term effects. Additionally, the study focuses on the GHS Index as a measure of preparedness, overlooking other potential determinants of FDI attractiveness. Future research could explore a broader range of health security indicators and incorporate longer-term data to provide a more comprehensive understanding of the relationship.Originality/valueThis study contributes to the literature by examining the previously underexplored relationship between a country’s epidemic and pandemic preparedness, as measured by the GHS Index and inward FDI inflows. By using panel data analysis and robust econometric techniques, the research provides empirical evidence supporting the positive impact of robust health systems on FDI attractiveness. The findings underscore the importance of prioritizing public health initiatives and epidemic preparedness as integral components of attracting and retaining foreign investment, thereby fostering economic resilience and sustainable development in host countries.

Foreign direct investment (FDI) inflows are considered to be one of the key factors in determining economic growth. As a fast developing economy, India has attracted lot of FDI in the recent past. The country which enjoys a higher economic growth is in a great position to attract larger FDI as it has the ability to generate higher return on the foreign investments. The study discusses the relationship between FDI flows into the country and economic growth during the period January 2000 to December 2014 using the quarterly data. The purpose of the study is to find the interrelationship between FDI and gross domestic product (GDP) in India. The study uses correlation, Granger causality test, Johansen cointegration test and vector autoregression (VAR) for studying the interrelationship between the variables. This study explores a positive association between the FDI inflows and GDP in the Indian economy. The study explores the unidirectional relationship flowing from FDI to GDP.