Quality of Government as an Attracting Factor of FDI - Evidence from Chosen Southeastern Europe Countries
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Abstract
This paper aims to examine the indicators of the quality of government of selected countries in South-Eastern Europe, which significantly influence the attractiveness of foreign direct investment. With the aim of quantifying the influence of certain factors on FDI, Montenegro, Serbia, Bosnia and Herzegovina, Romania, Bulgaria, Croatia, Albania and Northern Macedonia are included as the selected countries of the region, with the period of analysis limited to the period from 2007 to 2021. The results of the empirical analysis of the influence of the factors have shown that the factors referred to as the Rule of Law Index, Government Efficiency Index, Public Administration Efficiency Index and Political Stability Index have a significant and positive influence on the attractiveness of the country for foreign investors, while some other factors such as the cost of starting a new business have a negative influence on the country's attractiveness.
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References
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Chen, C. (2011). Information, incentives and multinational firms. Journal of International Economics, 85(1), 147-158.
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Contractor, F.J., Dangol, R., Nuruzzaman, N., & Raghunath, S. (2020). How do country regulations and business environment impact foreign direct investment inflows? International Business Review, 29(2), 101640.
Dimitrova, A., Rogmans, T., & Triki, D. (2020). Country-specific determinants of FDI inflows to the MENA region: A systematic review and future research directions. Multinational Business Review, 28(1), 1-38.
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Domazet, I., Marjanović, D., Ahmetagić, D., & Antonijević, M. (2022). Does the Increase in the Number of Registered Patents Affect Economic Growth? Economic Analysis: Applied Research in Emerging Markets, 55(2), 49-65.
Domazet, I., Marjanović, D., & Lazić, M. (2023). Political environment as a factor of foreign investment in Serbia. Srpska politička misao, 79(1), 11-40.
Dunning, J.H. (1988). The eclectic paradigm of international production: A restatement and some possible extensions. Journal of International Business Studies, 19(1).
Elheddad, M.M. (2018). What determines FDI inflows to MENA countries? Empirical study on Gulf countries: sectoral level analysis. Research in International Business and Finance, 44, 332-339.
Farooq, N., Sagheer, B., Ali, S., & Ishfaq, M. (2022). Measuring the Impact of Foreign Direct Investment on Economic Growth of Pakistan. Journal of Business and Environmental Management, 1(1), 53-62.
Graham, E.M., & Krugman, P. (1989). Foreign direct investment. Washington, DC.
Hymer, S.H. (1960). The international operations of national firms, a study of direct foreign investment. Doctoral dissertation. Massachusetts Institute of Technology.
Iamsiraroj, S. (2016). The foreign direct investment–economic growth nexus. International Review of Economics & Finance, 42, 116-133.
Jadhav, P. (2012). Determinants of foreign direct investment in BRICS economies: Analysis of economic, institutional and political factors. Procedia-Social and Behavioral Sciences, 37, 5-14.
Jensen, N.M. (2003). Democratic governance and multinational corporations: Political regimes and inflows of foreign direct investment. International organization, 57(3), 587-616.
Jude, C., & Levieuge, G. (2017). Growth effect of foreign direct investment in developing economies: The role of institutional quality. The World Economy, 40(4), 715-742.
Keita, O., & Baorong, Y. (2022). Foreign Direct Investment and Economic Growth Nexus: Empirical Insight from Guinea. Asian Economic and Financial Review, 12(1), 58-69.
Kemp, M.C. (1964). The Pure Theory of International Trade. Englewood Cliffs: Prentice-Hall.
Kindleberger, C.P. (1969). American business abroad. The International Executive, 11(2), 11-12.
Kumari, R., Shabbir, M.S., Saleem, S., Yahya Khan, G., Abbasi, B. A., & Lopez, L.B. (2023). An empirical analysis among foreign direct investment, trade openness and economic growth: evidence from the Indian economy. South Asian Journal of Business Studies, 12(1), 127-149.
Lazić, M., & Domazet, I. (2019). Theoretical and Practical Foundations of Inflation Targeting with Special Emphasis on the Experience of Serbia. Economic Analysis: Applied Research in Emerging Markets, 52(2), 152-162.
MacDougall, G.D.A. (1958). The benefits and cost of private foreign investment abroad: a theoretical approach. Economic Record, 36.
Mahmoodi, M., & Mahmoodi, E. (2016). Foreign direct investment, exports and economic growth: evidence from two panels of developing countries. Economic research-Ekonomska istraživanja, 29(1), 938-949.
Marjanović, D., & Domazet, I. (2021). Foreign Direct Investments: A Key Factor for Business Globalization. In: Handbook of Research on Institutional, Economic, and Social Impacts of Globalization and Liberalization, 96-116. Hershey: IGI Global.
Marjanović, D., & Domazet, I. (2021). Tax Competitiveness as a Significant Factor in Attracting Foreign Investment: The Case of Serbia. Argumenta Oeconomica, 47(2):63-80.
Marjanović, D., & Domazet, I. (2023) Economic Measures for Mitigation of the Consequences of COVID-19: evidence From Serbia. In: The Transformation of Global Trade in a New World, 180-199. Hershey: IGI Global.
Marjanović, D., Domazet, I., & Vukmirović, V. (2022). Social Environment as a Factor of Capital Investment in Serbia. Eastern European Economics, 60(3), 247-264.
Minović, J., & Jednak, S. (2021). The Relationship Between Innovation, Foreign Direct Investment and Economic Growth in the Selected EU and EU Candidate Countries. In: Finance, Innovation and Technology: new models and structures, 96-115. Skopje: Institute of Economics - Ss. Cyril & Methodius University.
Minović, J., Stevanović, S., & Aleksić, V. (2020). The Relationship between Foreign Direct Investment and Institutional Quality in Western Balkan Countries. Journal of Balkan & Near Eastern Studies, 23(1), 40-61.
Nwaogu, U.G., & Ryan, M.J. (2015). FDI, foreign aid, remittance and economic growth in developing countries. Review of Development Economics, 19(1), 100-115.
Odhiambo, N.M. (2022). Foreign direct investment and economic growth in Kenya: An empirical investigation. International Journal of Public Administration, 45(8), 620-631.
Okafor, G., Piesse, J., & Webster, A. (2017). FDI determinants in least recipient regions: the case of Sub-Saharan Africa and MENA. African Development Review, 29(4), 589-600.
Onafowora, O., & Owoye, O. (2019). Public debt, foreign direct investment and economic growth dynamics: Empirical evidence from the Caribbean. International Journal of Emerging Markets, 14(5), 769-791.
Ouhibi, S., Zouidi, N., & Hammami, S. (2017). The nexus between foreign direct investment, economic growth and public debt in the southern Mediterranean countries: Evidence from dynamic simultaneous-equation models. Journal of Economics and Economic Education Research, 18(1), 1-14.
Pearce, I.F., & Rowan, D.C. (1966). A framework for research into the real effects of international capital movements. Essays in Honour of Marco Fanno, 2, 505-535.
Rao, D.T., Sethi, N., Dash, D.P., & Bhujabal, P. (2023). Foreign aid, FDI and economic growth in South-East Asia and South Asia. Global Business Review, 24(1), 31-47.
Raza, S.A., Shah, N., & Arif, I. (2021). Relationship between FDI and economic growth in the presence of good governance system: Evidence from OECD Countries. Global Business Review, 22(6), 1471-1489.
Robock, S.H., & Simmonds, K. (1983). International Business and Multinational Enterprises. Richard D. Irwin, Illinois.
Sichei, M.M., & Kinyondo, G. (2012). Determinants of foreign direct investment in Africa: A panel data analysis. Global Journal of Management and Business Research, 12(18).
Södersten, B. (1970). A formal model of economic growth and international trade. In: International economics, 149-151. Palgrave Macmillan UK.
Vernon, R. (1966). International investment and international trade in the product cycle. Quarterly Journal of Economics, 80(2).
Quazi, R.M. (2014). Corruption and foreign direct investment in East Asia and South Asia: An econometric study. International journal of economics and financial issues, 4(2), 231-242.
Wang, M.L., Ntim, V.S., Yang, J., Zheng, Q., & Geng, L. (2022). Effect of institutional quality and foreign direct investment on economic growth and environmental quality: evidence from African countries. Economic Research-Ekonomska Istraživanja, 35(1), 4065-4091.
Yimer, A. (2023). The effects of FDI on economic growth in Africa. The Journal of International Trade & Economic Development, 32(1), 2-36.
Bashir, M.A., Sheng, B., Farooq, M.U., Bashir, M.F., & Shahzad, U. (2021). The role of macroeconomic and institutional factors in foreign direct investment and economic growth: empirical evidence in the context of emerging economies. Global Local Econ Rev, 24(2), 67.
Buchanan, B.G., Le, Q.V., & Rishi, M. (2012). Foreign direct investment and institutional quality: Some empirical evidence. International Review of financial analysis, 21, 81-89.
Buckley, P.J., & Casson, M.C. (1976). The future of multinational enterprise. London: Palgrave Macmillan UK.
Caves, R.E. (1971). International corporations: The industrial economics of foreign investment. Economica, 38(149), 1-27.
Chen, C. (2011). Information, incentives and multinational firms. Journal of International Economics, 85(1), 147-158.
Cohen, B. (1975). Multinational Firms and Asian Exports. New Haven: Yale University Press.
Contractor, F.J., Dangol, R., Nuruzzaman, N., & Raghunath, S. (2020). How do country regulations and business environment impact foreign direct investment inflows? International Business Review, 29(2), 101640.
Dimitrova, A., Rogmans, T., & Triki, D. (2020). Country-specific determinants of FDI inflows to the MENA region: A systematic review and future research directions. Multinational Business Review, 28(1), 1-38.
Domazet, I. (2018). Improving competitiveness and economic development through FDI. In: Developmental State and Millennium Development Goals: Country experiences, ed. Kartik Roy and Sandip Kar, 169-189. India: World Scientific Publishing Co.
Domazet, I., & Marjanović, D. (2018). Foreign Direct Investment and Economic Development: Comparative Analysis of Bulgarian, Romanian and Serbian Economies. In: Western Balkans Economies in EU Integration: past, present and future, 150-171. Nica: CEMAFI International Association.
Domazet, I., & Marjanović, D. (2018). FDI as a Factor of Improving the Competitiveness of Developing Countries: FDI and Competitiveness. In: Foreign Direct Investments (FDIs) and Opportunities for Developing Economies in the World Market, ed. V. Malepati, 82-104. Hershey: IGI Global.
Domazet, I., Marjanović, D., Ahmetagić, D., & Antonijević, M. (2022). Does the Increase in the Number of Registered Patents Affect Economic Growth? Economic Analysis: Applied Research in Emerging Markets, 55(2), 49-65.
Domazet, I., Marjanović, D., & Lazić, M. (2023). Political environment as a factor of foreign investment in Serbia. Srpska politička misao, 79(1), 11-40.
Dunning, J.H. (1988). The eclectic paradigm of international production: A restatement and some possible extensions. Journal of International Business Studies, 19(1).
Elheddad, M.M. (2018). What determines FDI inflows to MENA countries? Empirical study on Gulf countries: sectoral level analysis. Research in International Business and Finance, 44, 332-339.
Farooq, N., Sagheer, B., Ali, S., & Ishfaq, M. (2022). Measuring the Impact of Foreign Direct Investment on Economic Growth of Pakistan. Journal of Business and Environmental Management, 1(1), 53-62.
Graham, E.M., & Krugman, P. (1989). Foreign direct investment. Washington, DC.
Hymer, S.H. (1960). The international operations of national firms, a study of direct foreign investment. Doctoral dissertation. Massachusetts Institute of Technology.
Iamsiraroj, S. (2016). The foreign direct investment–economic growth nexus. International Review of Economics & Finance, 42, 116-133.
Jadhav, P. (2012). Determinants of foreign direct investment in BRICS economies: Analysis of economic, institutional and political factors. Procedia-Social and Behavioral Sciences, 37, 5-14.
Jensen, N.M. (2003). Democratic governance and multinational corporations: Political regimes and inflows of foreign direct investment. International organization, 57(3), 587-616.
Jude, C., & Levieuge, G. (2017). Growth effect of foreign direct investment in developing economies: The role of institutional quality. The World Economy, 40(4), 715-742.
Keita, O., & Baorong, Y. (2022). Foreign Direct Investment and Economic Growth Nexus: Empirical Insight from Guinea. Asian Economic and Financial Review, 12(1), 58-69.
Kemp, M.C. (1964). The Pure Theory of International Trade. Englewood Cliffs: Prentice-Hall.
Kindleberger, C.P. (1969). American business abroad. The International Executive, 11(2), 11-12.
Kumari, R., Shabbir, M.S., Saleem, S., Yahya Khan, G., Abbasi, B. A., & Lopez, L.B. (2023). An empirical analysis among foreign direct investment, trade openness and economic growth: evidence from the Indian economy. South Asian Journal of Business Studies, 12(1), 127-149.
Lazić, M., & Domazet, I. (2019). Theoretical and Practical Foundations of Inflation Targeting with Special Emphasis on the Experience of Serbia. Economic Analysis: Applied Research in Emerging Markets, 52(2), 152-162.
MacDougall, G.D.A. (1958). The benefits and cost of private foreign investment abroad: a theoretical approach. Economic Record, 36.
Mahmoodi, M., & Mahmoodi, E. (2016). Foreign direct investment, exports and economic growth: evidence from two panels of developing countries. Economic research-Ekonomska istraživanja, 29(1), 938-949.
Marjanović, D., & Domazet, I. (2021). Foreign Direct Investments: A Key Factor for Business Globalization. In: Handbook of Research on Institutional, Economic, and Social Impacts of Globalization and Liberalization, 96-116. Hershey: IGI Global.
Marjanović, D., & Domazet, I. (2021). Tax Competitiveness as a Significant Factor in Attracting Foreign Investment: The Case of Serbia. Argumenta Oeconomica, 47(2):63-80.
Marjanović, D., & Domazet, I. (2023) Economic Measures for Mitigation of the Consequences of COVID-19: evidence From Serbia. In: The Transformation of Global Trade in a New World, 180-199. Hershey: IGI Global.
Marjanović, D., Domazet, I., & Vukmirović, V. (2022). Social Environment as a Factor of Capital Investment in Serbia. Eastern European Economics, 60(3), 247-264.
Minović, J., & Jednak, S. (2021). The Relationship Between Innovation, Foreign Direct Investment and Economic Growth in the Selected EU and EU Candidate Countries. In: Finance, Innovation and Technology: new models and structures, 96-115. Skopje: Institute of Economics - Ss. Cyril & Methodius University.
Minović, J., Stevanović, S., & Aleksić, V. (2020). The Relationship between Foreign Direct Investment and Institutional Quality in Western Balkan Countries. Journal of Balkan & Near Eastern Studies, 23(1), 40-61.
Nwaogu, U.G., & Ryan, M.J. (2015). FDI, foreign aid, remittance and economic growth in developing countries. Review of Development Economics, 19(1), 100-115.
Odhiambo, N.M. (2022). Foreign direct investment and economic growth in Kenya: An empirical investigation. International Journal of Public Administration, 45(8), 620-631.
Okafor, G., Piesse, J., & Webster, A. (2017). FDI determinants in least recipient regions: the case of Sub-Saharan Africa and MENA. African Development Review, 29(4), 589-600.
Onafowora, O., & Owoye, O. (2019). Public debt, foreign direct investment and economic growth dynamics: Empirical evidence from the Caribbean. International Journal of Emerging Markets, 14(5), 769-791.
Ouhibi, S., Zouidi, N., & Hammami, S. (2017). The nexus between foreign direct investment, economic growth and public debt in the southern Mediterranean countries: Evidence from dynamic simultaneous-equation models. Journal of Economics and Economic Education Research, 18(1), 1-14.
Pearce, I.F., & Rowan, D.C. (1966). A framework for research into the real effects of international capital movements. Essays in Honour of Marco Fanno, 2, 505-535.
Rao, D.T., Sethi, N., Dash, D.P., & Bhujabal, P. (2023). Foreign aid, FDI and economic growth in South-East Asia and South Asia. Global Business Review, 24(1), 31-47.
Raza, S.A., Shah, N., & Arif, I. (2021). Relationship between FDI and economic growth in the presence of good governance system: Evidence from OECD Countries. Global Business Review, 22(6), 1471-1489.
Robock, S.H., & Simmonds, K. (1983). International Business and Multinational Enterprises. Richard D. Irwin, Illinois.
Sichei, M.M., & Kinyondo, G. (2012). Determinants of foreign direct investment in Africa: A panel data analysis. Global Journal of Management and Business Research, 12(18).
Södersten, B. (1970). A formal model of economic growth and international trade. In: International economics, 149-151. Palgrave Macmillan UK.
Vernon, R. (1966). International investment and international trade in the product cycle. Quarterly Journal of Economics, 80(2).
Quazi, R.M. (2014). Corruption and foreign direct investment in East Asia and South Asia: An econometric study. International journal of economics and financial issues, 4(2), 231-242.
Wang, M.L., Ntim, V.S., Yang, J., Zheng, Q., & Geng, L. (2022). Effect of institutional quality and foreign direct investment on economic growth and environmental quality: evidence from African countries. Economic Research-Ekonomska Istraživanja, 35(1), 4065-4091.
Yimer, A. (2023). The effects of FDI on economic growth in Africa. The Journal of International Trade & Economic Development, 32(1), 2-36.