“Determinants of foreign direct investment in southeast European countries”

Abstract

The ability to attract international capital can offer large potential benefits for developing countries. The objective of this paper is to reveal the main determinants of foreign direct investments in southeast European countries (SEEC). We perform an econometric model based on a panel data analysis for 8 countries with similar economic, political and cultural surroundings: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Montenegro, Romania and Serbia. The observation period is 1995 – 2008. Unit root tests have been applied for all 32 variables included in the model. Some of the variables have been differenced in order to become stationary, which improves the econometric model. Empirical results indicate that business freedom, fiscal freedom, GDP growth rate, population, exchange rate, current account as a percentage of GDP and property rights are factors on which Southeastern European countries’ policy makers should focus when seeking to attract foreign direct investment.