The paper explores the determination of foreign direct investment (FDI) into the Balkan transition economies -Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Montenegro, Romania and Serbia. Detailed FDI inflows to Southeast Europe (SEE) are analysed to determine the main differences in the volume, timing and sectoral structure of FDI within the region and in comparison to the Central East European countries. A gravity model to all transition economies during 1990-2011 is then estimated to assess whether the factors driving FDI to the Western Balkans are different. They are found to be so; even when size of their economy, distance, institutional quality and prospects of EU membership are taken into account, Western Balkans countries receive less FDI. These issues are of high policy relevance for the Balkan economies and ought to contribute to the current debate on the 'new growth model'. JEL Classification:P3, O4, F2

The paper explores the impact of foreign direct investment (FDI) on the economies of the Western Balkans during their transition to a market system. The paper recalls the political and historical circumstances that have delayed transition in the Western Balkans economies, and draws attention to the specific features of FDI that have influenced their economic development. The main hypotheses are formulated and basic tests performed on data from the manufacturing sector. However, data limitations mean that we can only test for horizontal, rather than vertical, spillovers and in practice we are not able to identify many significant horizontal spillover effects. This finding can probably be explained by various factors -institutional, economic, and political -that have constrained FDI effects in the Western Balkan economies in comparison to the Central East European countries. Our work has important policy implications; in order to accelerate economic development, Western Balkan policy makers may need to implement more effective economic policies. JEL codes: F23, F63, L53, P33

The article explores the determination of foreign direct investment (FDI) into the Balkan transition economies – Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Montenegro, Romania and Serbia. Detailed FDI inflows to Southeast Europe are analysed to determine the main differences in the volume, timing and sectoral structure of FDI within the region and in comparison to the Central East European countries. A gravity model for all transition economies during 1990–2011 is then estimated to assess whether the factors driving FDI to the Western Balkans are different. They are found to be so; even when the size of their economies, distance from the source economies, institutional quality and prospects of EU membership are taken into account, Western Balkans countries receive less FDI than other transition countries. These issues are of policy relevance for the Balkan economies and ought to contribute to the current debate on the ‘new growth model’.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThe paper analyses the 20-year experience with transition in the SEE countries in a comparative framework, illustrating how these countries encountered difficulties in its implementation, despite having some of the best starting conditions in 1989 to implement a swift transition to a market economy. The paper recalls the initial conditions in the SEE region in 1989, macroeconomic performance and progress achieved in the various transition-related economic reforms. The international issues are also addressed related to the post-2000 integration of the SEE countries with the EU and among themselves. The paper also reflects on the main factors that are responsible for delays in transition in SEE related to political instability, delayed integration with the EU, and inappropriate economic policies.

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International aid and assistance to the Western Balkans, which began more than two decades ago after the disintegration of sfr Yugoslavia, has been severely criticised on various grounds by academics, politicians, and domestic elites. One of the main points of criticism has been heavy foreign interference into domestic affairs, which deprives local policy-makers of ‘policy ownership.’ This paper uses four paradigmatic examples of reform in Serbia – in the areas of labor market, income taxation, pensions system, and privatization – to show that, despite the widely accepted view of the dominant role of international actors in the creation of the reform agenda, there was significant room for local policy-makers in Serbia to exercise full ownership over the ongoing reforms. What policy-makers really needed was expertise, a clear vision of the desired reforms, the determination to defend their agenda, and technical skills to implement it. The significantly different outcomes of the four areas of reform analyzed in this paper, despite involving virtually the same actors of international intervention, seem to illustrate well our hypothesis that the failure of some important sectoral reforms in Serbia during the post-2000 period was the result of the policy-makers’ own weaknesses, rather than the result of external conditionality.

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After twenty-five years of economic transition economic performance varies considerably in transition countries, while in most cases current outcomes show that the desired effects have not been achieved. In this paper we elaborate on why industrial policy has been a key missing element in the transition and has greatly contributed to the unexpectedly small and slow pace of economic recovery. After discussing the achieved level of economic development we undertake an empirical analysis in order to define the role of several important factors of growth, as seen at the beginning of transition (reform progress, macroeconomic stabilisation, initial conditions) and those that attracted particular attention during the global crisis (industrial/manufacturing output, exports). The analysis shows that the growth model in transition economies has altered both over time and in relation to the progress of transition reforms. The most important change concerns the share of industrial output in GDP, which is found to be one of the most important factors of growth after the initial phase of reform. These results suggest that transition economies should implement industrial policy measures as an integral part of their reform strategy instead of just speeding up reforms as the key (if not the only) element of government policy. Based on these results, we explore what would be a viable and proper industrial policy in transition countries, particularly what should be done in current conditions after the damaging effects of the recurrent global recession, and make some policy suggestions.