The Effects of Foreign Direct Investments on Transition Economies: The Balkans Case
Abstract: The stabilized economic growth in the long-run lies ahead as an obstacle in the long road of development for many transition economies especially for those are in the Balkans. Some of the Balkan countries such as Croatia and Bulgaria have managed to get aboard to the European Union train. But for many others, the train has not arrived yet. Furthermore, many of those non-European Union member transition economies in the Balkans have to deal with an inheritance of a war economy experienced during early 90s. Today non-European Union member transition economies in the Balkans need to increase the capital flows to their countries for economic growth purposes. The literature on foreign direct investments suggest that there may be some positive effects on the economic growth of the host countries depending on many conditions - most commonly on absorptive capacities. However, are they really ready for this? Are the absorptive capacities in those countries at the extent in which enable them to extract benefits from foreign investments? The answer to this question is the key to truly understand the effects of foreign direct investments in those countries. Therefore, in this study, the effects of foreign direct investments on the economic growth of non-European Union member transition economies in the Balkans are investigated from the absorptive capacity perspective. This paper serves a role in comprehending the true dynamics of absorptive capacities measured through a new technique presented in this paper. The results confirm that current foreign direct investment flows to those non-European Union member Balkan countries are not able to work miracles given the absorptive capacities of the host countries.
International Burch University