THE IMPACT OF FOREIGN DIRECT INVESTMENTS ON ECONOMIC GROWTH AND TRADE: A PANEL APPROACH OF SELECTED WESTERN BALKAN COUNTRIES

According to recent trends, there is a focus on the interest in the Western Balkan economies to attract foreign capital in the form of foreign direct investment (FDI) as a source of external financing and economic recovery factor. In this paper, an attempt is made to analyze the movement and impact of FDI on economic growth and foreign trade on the example of the Western Balkans (North Macedonia, Albania, Serbia, Bosnia and Herzegovina, and Montenegro). This analysis aims to examine the correlation and causal relationship between FDI, economic growth and the foreign trade case of each individual Western Balkan country. The inflow of foreign capital in the form of FDI in the Western Balkan countries has a positive impact on GDP growth, exports and imports. From the results, it can be concluded that the inflow of FDI into the Western Balkan countries has a positive effect on the economic growth and the increase of foreign trade. The analysis showed that FDI has a statistically significant and positive impact on GDP in the Western Balkan countries, and is a key precondition for intensifying foreign trade. This study provides a promising step towards developing a more comprehensive empirical research by a dynamic estimation procedure.