The Effects of FDI on Domestic Investments in Western Balkans

Abstract

Research background: In order to contribute to economic growth, inward foreign direct investments (FDI) need to meet certain economic and social criteria. Besides the contribution to the level of education, technological level, financial development, tax system, trade and investment policies, and market size, FDI should also encourage domestic investments (crowding in-effect).

Purpose of the article: This paper examines the importance and effects of the inward and outward direct investments, gross savings as well as real growth on domestic investments in the case of Western Balkan countries (North Macedonia, Serbia, Albania, Kosovo, Montenegro, and Bosnia & Herzegovina). Thus, the logic behind this research is to determine whether and in which direction are aimed effects of FDI.

Methods: The relation between FDI and domestic investments has been analyzed by employing panel data approach with and without constrains on cross-sections. The study is based on a panel data of six countries for the period between 2007-2018, (i.e., in total, we have 66 observations).

Findings & Value added: The general conclusion from this analysis confirm that inward foreign direct investments in the Western Balkans, as well as real economic growth both significantly and positively affect the domestic investments.