The impact of political volatility on foreign direct investment : evidences from the Western Balkan countries

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Abstract : In this paper we estimate the effect of political volatility in Balkan transition economies on their FDI inflows. For transition economies unaffected by domestic and international instability, FDI inflows in the early 1990s were about 20 to 30% of those achieved by European market economies with similar economic characteristics. Progress with reforms and transition increased post-communist economies’ability to achieve their potential FDI inflows. The Balkan transition countries suffered additional shortage in FDI due to many barriers. However, we estimate than an important barrier is domestic and international volatility. Key Words: foreign direct investment, Balkan transition economies, political volatility, political risk.

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