The effects of transition and political instability on foreign direct investment inflows: Central Europe and the Balkans

Date
2006
Authors
Brada, J. C.
Kutan, A. M.
Yigit, T. M.
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Source Title
Economics of Transition
Print ISSN
2577-6975
Electronic ISSN
2577-6983
Publisher
Wiley-Blackwell Publishing Ltd.
Volume
14
Issue
4
Pages
649 - 680
Language
English
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Abstract

This paper examines the effects of transition and of political instability on foreign direct investment (FDI) flows to the transition economies of Central Europe, the Baltics and the Balkans. We find that FDI flows to transition economies unaffected by conflict and political instability exceed those that would be expected for comparable West European countries. Success with stabilization and reform increased the volume of FDI inflows. In the case of Balkan counties, conflict and instability reduced FDI inflows below what one would expect for comparable West European countries, and reform and stabilization failures further reduced FDI to the region. Thus, we find that the economic costs of instability in the Balkans in terms of foregone FDI have been quite high. © 2006 The Authors Journal compilation © 2006 The European Bank for Reconstruction and Development.

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