This paper investigates the impact of various factors on the level of foreign direct investments in a country, with a special emphasis on the noneconomic, mostly institutional determinants. Using a broad sample of 124 countries and data for the period from 1996 to 2019, a dynamic panel GMM regression is applied. The regression results indicate that the relative share of FDI in the GDP depends positively on the development of the institutions in the country. To attract foreign investors, host countries should make considerable progress in the functioning of their legal system, the effectiveness of the government and fight against corruption, as well as creating an overall favorable investment climate. The same regression model applied to a subsample of European countries reinforced these findings, sending an important message to policymakers, who need to make decisive steps towards fixing systematic deficiencies rather than subsidizing foreign investors, which is a practice with suspicious cost-effectiveness at the macro level.
Edvard Jakopin
Are the transitional countries of SEE trapped in institutional transition or not? The institutional transition that has been lasting for almost three decades, and almost two decades in the Republic of Serbia, initiated the rapid destruction of the institutions of the previous political and economic system, but the construction of new market institutions has been slow, inefficient and partial. The Republic of Serbia lost the three decades of economic growth and development, which, as evidenced by economic law, takes twice as much time to restore the system to the previous equilibrium of the length of the time which the system is located in off-balance. The average 3% growth in the seventeen transition years is insufficient to compensate for the enormous backlog of the 1990s. The contribution of the research study to the work focuses on the analysis of the interdependence of economic growth and institution building. A special viewpoint is aimed at the corruption factor destroying institutions in all transition countries, reducing their economic growth and productivity, and negatively affecting the attractiveness of FDIs.