HOW FOREIGN DIRECT INVESTMENT AFFECTS NATIONAL COMPETITIVENESS: THE CASE OF THE WESTERN BALKAN COUNTRIES

Abstract

The purpose of this study is to examine the relationship between direct foreign investment and the competitiveness of the economies of the Western Balkan countries (Albania, Bosnia and Herzegovina, Macedonia, Montenegro, and Serbia) in the period between 2008 and 2017. The countries of the Western Balkan region were included in the analysis due to the fact that, in the last two decades, there has been a noticeable trend of increasing interest of foreign investors in investing in the countries of the region, both because of their good geographical position and because of the advantages they provide in terms of realising the basic, profit motivation of foreign investors. The research was conducted using the UNCTAD database, the international comparable base of data. First, an analysis of the dynamics of foreign direct investment flows in the countries of the Western Balkan region was performed. In order to examine the relationship between foreign direct investment and national competitiveness, Pearson’s linear correlation coefficient and Spearman’s rank correlation coefficient were applied. The Granger causality test was performed to assess the degree of influence of direct foreign investment on the competitiveness of the economies of the observed countries. The obtained research results not only contribute to the development of the existing literature on foreign direct investment and national competitiveness but also provide valuable knowledge to economic policy-makers about the possibilities of using the potential of foreign direct investments to improve the competitive and development performance of the national economy.