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The Impact of Institutional Quality on Foreign Direct Investments: Insight from Western Balkan Region

In: Economic Recovery, Consolidation, and Sustainable Growth

Author

Listed:
  • Sara Mucha

    (South East European University)

  • Besnik Fetai

    (South East European University)

Abstract

The aim of this research is to provide empirical evidence and to investigate the impact of institutional quality on foreign direct investment in Western Balkan countries over the period 2000–2019 using the panel data analysis. We used the technique of pooled OLS, fixed effects, random effects, and Hausman–Taylor model with instrumental variables (IV). The results show that only two components of institutional quality have significant correlation with FDI. Rule of law (RL) has a negative effect on FDI while political stability (PS) has shown a positive effect on FDI. Also, the determinant of FDI, such as inflation has shown significant positive correlations with FDI. The policies that should be taken by central and local government to overcome these barriers and identifying motivating strategies for existing investors for the purpose of maintaining and expanding their investment (re-investments) would be a guide for reforms to be made in the development of overall economic and FDI.

Suggested Citation

  • Sara Mucha & Besnik Fetai, 2023. "The Impact of Institutional Quality on Foreign Direct Investments: Insight from Western Balkan Region," Springer Proceedings in Business and Economics, in: Abdylmenaf Bexheti & Hyrije Abazi-Alili & Léo-Paul Dana & Veland Ramadani & Andrea Caputo (ed.), Economic Recovery, Consolidation, and Sustainable Growth, pages 285-303, Springer.
    • Handle: RePEc:spr:prbchp:978-3-031-42511-0_18
    DOI: 10.1007/978-3-031-42511-0_18
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