The effect of Foreign Direct Investment in Western Balkan economies for the period 2005-2015

Abstract One of the most important conditions for the successful process of economic restructuring of transition countries including Balkans region is the opening of these economies towards foreign investors. This paper surveys the effects of outward foreign direct investment in the countries of Western Balkan (Albania, Bosnia and Herzegovina, Croatia, Kosovo, Macedonia, Montenegro and Serbia) in the period between 2005 until 2015. In all these countries FDI is often highly welcomed by government officials because they expect these capital flows to have a positive impact on home country exports, GDP, employment rate, as well as positive effects on the balance of payments i.e. on narrowing current account deficit. The main hypotheses in the paper are tested econometrically and we identify weak correlation between foreign direct investment on the one side and export, GDP and employment rate on the other side. While in the most countries we found statistically significant correlation between FDI and current account deficit. Key words: foreign direct investment; export; GDP; employment rate; current account deficit; Pearson correlation