A contribution of economic theory to interpret foreign investment in Serbia
Keywords:
direct foreign investment, model OLI, Serbia JEL F21, F23Abstract
The role of foreign investment in the framework of growth processes is one of the traditionally controversial aspects of the international economy. Economies in transition have not been immune to this debate. After the fall of communism, most of central and eastern Europe entrusted foreign capital with a key role in economic modernization, which, combined with liberalizing policies, ushered in a period of rapid growth. In Serbia, where attracting foreign investment has become a central axis of economic policy for a decade, the debate on the driving role of foreign investment is still ongoing. Authoritative voices have recently questioned the effectiveness of a policy that, in light of the low presence of foreign capital compared to other economies in the region, has produced modest results. These criticisms are based on the limited effect of new foreign investments on the performance of the economy in the short term, and on privatizations that require a strong adjustment of labor. This article reviews the arguments on the character of foreign investment in Serbia in the light of two complementary theories: the rent-seeking theory and the eclectic investment paradigm.
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