National Competitiveness and Foreign Direct Investment in Emerging Europe

Abstract

The paper evaluates the relationship between the indicators of competitiveness of national economies (real unit labour costs and Global Competitiveness Index) and the flow of FDI in Central and Eastern Europe (CEE) over the last two decades. Our results show that from 2000 to 2020, CEE economies had an average annual inflow of FDI of 3.9% of GDP, with significant variation across the region. We have found out that the relationship between the net inflow of FDI and the real unit labour costs was strongly negative, while the results on the link with the Global Competitiveness Index was less conclusive. In 2020, due to pandemic global flow of FDI, shrank by around 40%, while the net inflow of FDI to CEE countries declined on average by 15%. These trends and results of survey-based analyses from other studies suggest that CEE region, and especially the Western Balkans countries, may benefit from the nearshoring process in the future. To exploit that opportunity, they may need to put focus of their policies on efficiency-enhancing tax reforms (that would reduce the unit labour costs) and other structural reforms that would result in improvement of the stock and quality of their physical and human capital.

Controversies of foreign direct investments: The case of Serbia

“…FDI, although they are not one of the most important factors in the development of every country, occupy a significant place. Countries that do not have enough of their own capital for investments and thereby ensure higher rates of economic development, as an imperative, attract FDI [26]. FDI have many forms and all these forms do not affect the economic development of the country receiving the capital in the same way, nor do they have the same effect on the country providing the capital.…”