Institutional setting as a determinant of FDI attraction – example of Serbia

Zvezdanović Lobanova, Jelena and Maček, Anita and Ovin, Rasto (2014) Institutional setting as a determinant of FDI attraction – example of Serbia. In: Possibilities and Perspectives for Foreign Direct Investments in the Republic of Serbia : International Thematic Proceedings. Institute of International Politics and Economics, Belgrade, pp. 17-41. ISBN 978-86-7067-204-8

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Abstract

South-Eastern European countries (SEE countries) are still net importers of foreign direct investment (FDI) in the form of cross-border mergers and acquisition. Their companies have not significantly involved in this type of expansion on the foreign markets. The main obstacles to entrepreneurship in their business environment are high levels of corruption and large state bureaucracy. Therefore, their economies are mostly characterized by low competitiveness, high trade deficit and insufficient inflow of FDI necessary to support their transition process from centrally planned toward market economy. Design of an efficient, transparent legal and institutional framework is a crucial determinant of FDI. Institutional setting in SEE countries has an impact on the entry mode choice as undeveloped institutions drive up the costs of organizing business. Therefore, efforts towards the higher quality of institutional setting may help them to attract more FDI inflow and catch up more advanced economies. To enable an insight into the quality of institutional setting in Serbia, authors will show the most important economic and political events since the beginning of the 90s which had direct or indirect influence on the level of FDI.

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