Foreign direct investment legislation and economic growth in Western Balkan countries: a panel analysis
Abstract
Foreign direct investment (FDI) legislation plays a crucial role in fetching foreign investments. The objective of this study is to measure the impact of FDI on the Western Balkans countries (WBCs) and interpret the FDI law in the said countries. A panel data was obtained from the World Bank Indicators in order to conduct an empirical investigation. The sample is spread over twenty-eight years from 1995 to 2022. For econometric analysis, the study uses pooled ordinary least square (OLS), fixed effect (FE), random effect (RE), and Hausman test. The study also uses the Breuch and Pagan Lagrangian Multiplier test for Random Effect, the test for parameter constancy, the modified Wald test for groupwise heteroskedasticity, the Wooldridge test for autocorrelation, the test for serial correlation in residuals, and a test for normality. After a detailed analysis, the study concludes that FDI has a positive impact on the economic growth of WBCs. The study suggests that enforcing the rule of law on FDI will reduce the corruption index and create a favourable environment for WBCs to attract foreign investment.
First published online 17 March 2025
Keyword : law, foreign direct investment, economic growth, panel data, fixed effect, random effect, Hausman test
How to Cite
Ibraimi, X., Ziberi, B. F., Ahmad, N., & Vveinhardt, J. (2025). Foreign direct investment legislation and economic growth in Western Balkan countries: a panel analysis. Technological and Economic Development of Economy, 1-21. https://doi.org/10.3846/tede.2025.23132
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Mensah, E., Mensah, R. O., & Danquah, D. A. (2024). Threshold effects of inflation on the FDI–growth nexus: Evidence from inflation-targeting countries in sub-Saharan Africa. Economic Research-Ekonomska Istraživanja, 37(1), Article 2299991. https://doi.org/10.1080/1331677X.2023.2299991
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Opeyemi, A. F. (2020). Impact of foreign direct investment and inflation on economic growth of five randomly selected countries in Africa. Journal of Economics and International Finance, 12(2), 65–73. https://doi.org/10.5897/JEIF2020.1031
Pavlović, A., Njegovan, M., Ivanišević, A., Radišić, M., Takači, A., Lošonc, A., & Kot, S. (2021). The impact of foreign direct investments and economic growth on environmental degradation: The case of the Balkans. Energies, 14(3), Article 566. https://doi.org/10.3390/en14030566
Pegkas, P. (2015). The impact of FDI on economic growth in Eurozone countries. The Journal of Economic Asymmetries, 12(2), 124–132. https://doi.org/10.1016/j.jeca.2015.05.001
Perić, M., & Stanišić, N. (2020). FDI inflow effects on Western Balkan area’s labour markets. European Journal of Applied Economics, 17, 147–160. https://doi.org/10.5937/EJAE17-25663
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Pollan, T. (2006). Legal framework for the admission of FDI. Eleven International Publishing.
Popović, G., Erić, O., & Stanić, S. (2020). Trade openness, institutions and economic growth of the Western Balkans countries. Montenegrin Journal of Economics, 16(3), 173–184. https://doi.org/10.14254/1800-5845/2020.16-3.14
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Sağlam, Y. (2017). FDI and economic growth in European transition economies: Panel data analysis. Journal of Yaşar University, 12(46), 123–135.
Saidi, Y., & Ochi, A. (2023). Estimating relationships among foreign direct investment, governance quality, and economic growth in developing countries using the threshold auto‐regressive model. Regional Science Policy & Practice, 15(2), 403–424. https://doi.org/10.1111/rsp3.12654
Savićević, M., & Kostić, M. (2020). The impact analysis of foreign direct investment on export: The case of the Western Balkan countries. Economic Themes, 58(2), 171–186. https://doi.org/10.2478/ethemes-2020-0010
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