Determinants of FDI in Balkan Countries: The Role of Different Stages of EU Accession

Foreign Direct Investments (FDI) have heterogeneously increased across Balkan countries over the last decades. We investigate one likely source of this heterogeneity by using information on 9,185 greenfield FDI locating in 8 Balkan countries from 84 origin countries worldwide over the 2003-2019 period. Notably, we investigate the role of the different phases of the European Union accession process in determining the probability that an FDI will locate in one specific Balkan country. In doing so, we control for standard FDI determinants such as market size, openness to trade, wages and governance as well as different forms of co- location between the new investment and those previously located in the same host country. We stratify our sample in terms of both FDI origin countries—distinguishing between EU and non-EU investors—and industry activity located abroad. Overall, all stages (negotiations, approval, official membership) appear to be associated with positive gains in FDI. Moreover, an anticipation effect emerges from the approval phase, most likely due to the reduction in the uncertainty perceived by investors. The positive effect of prospect membership also extends to the years before official negotiations start. These results also hold when stratifying the sample for industry heterogeneity and origin country of investments, the only exception being the negative effect of EU membership on the location of FDI in manufacturing. To our knowledge, this is the first study to address the issue of FDI determinants in Balkan countries including such a comprehensive set of regressors and exploring country of origin and functional heterogeneity at the investment level, while dealing with the hot topic of the EU accession.