Are Foreign Direct Investments in the Balkans Different?

The chapter examines whether there are specific features driving foreign direct investment (FDI) to the Western Balkan (WB) countries—Albania, Bosnia and Herzegovina, Croatia, Macedonia, Montenegro and Serbia—compared with other transition economies. Despite many positive developments during the 2000s, the Balkans may still face an image problem: for many potential foreign investors, the word Balkan ‘conjures up troubled images of war and conflict, rather than investment opportunities and economic potential’ (Cviic and Sanfey, 2010, p. 124). This chapter explores whether FDI into the Western Balkans has been lower than can be explained by the economic characteristics of the region, such as the smaller size of domestic markets and greater distance from the main investing economies. Our analysis confirms this view; FDI to the Western Balkans is driven by the same economic, geographical and institutional factors as other transition economies, but there is evidence of a significant negative regional effect.