Determinants of Foreign Direct Ivestment inflow in South East European Countries - Panel Estimation

Abstract The first part of the paper examines the objective of the study. Following, in the second part we continuo with analyses of the importance of FDI to transition economies of (SEEC) South East European Countries. The study examines the trend and characteristics of FDI based on geographical distribution of FDI in the SEECs and compare its amount with Central East European Countries (CEECs). In the third part, following the theoretical approach of FDI and empirical evidence identified by literature review of FDI determinants, we tried to identify some of the main host country determinants of FDI inflow in SEECs. For this reason, we employed panel data estimation. Using a sample of SEECs and panel data technique under random effect specification the paper research the relationship between FDI, GDP growth, GDP per capita, number of inhabitants, trade openness, inflation, exchange rate, external debt and some technology development proxies.Foreign Direct Investment, SEECs, Panel Econometrics

Trgovina i izravne strane investicije na primjeru zemalja Jugoistočne Europe i novih članica Europske unije

The goal of this research is to provide an empirical assessment of the complementarity or substituting relationship between Trade and FDI in a link to country characteristics, using bilateral level data between FDI and trade for the period 1994 – 2010. In the research, an augmented gravity model has been used to test the relationship between Trade (both export and import), FDI stock and country characteristics between OECD-20 countries and SEE-5 and EU-NMS-10 countries. The empirical model considers how the relationship between FDI and Trade determine whether type of FDI into SEE-5 and EU-NMS-10 from core OECD-20 countries, is vertical or horizontal. With regard to the relationship between exports and FDI, the findings of the research showed mixed evidence, thus supporting vertical FDI for EU-NMS-10 countries, and horizontal FDI for SEE-5 countries. On the other hand, based on the relationship between imports and FDI, the results of the research supported vertical FDI for both EU-NMS-10 and SEE-5 group of countries. The basic conclusion is that the research provides an empirical evidence on the mixed nature of FDI into the host SEE-5 and EU-NMS-10 countries, supporting both complementary and substituting relationship between trade and FDI in the host countries.Cilj ovog istraživanja je utvrditi postojanje komplementarne odnosno supstitucijske veze između međunarodne trgovine i izravnih stranih investicija (ISI) uzevši u obzir obilježja gospodarstva. Istraživanje se temelji na podacima o ISI i trgovini u razdoblju 1994. – 2010. U istraživanju je korišten prošireni gravitacijski model kako bi se testirala veza između međunarodnih trgovinskih tijekova (izvoz i uvoz), razine FDI i nacionalnih karakteristika OECD 20 zemalja, 5 zemalja Jugoistočne Europe (5-JIE) i 10 novih članica EU (10-NCEU). Empirijski model analizira na koji način veza između ISI i međunarodne trgovine određuje horizontalnu odnosno vertikalnu prirodu ISI iz OECD-20 zemalja prema 5-JIE i 10-NCEU zemljama. Rezultati veze između izvoza i ISI ukazuju na postojanje vertikalnog ISI u 10-NCEU zemljama i horizontalnog ISI u 5-JIE zemljama. S druge strane, temeljem veze između uvoza i ISI, rezultati upućuju na vertikalnu prirodu ISI u obje prethodno spomenute skupine zemalja. Osnovni zaključak istraživanja je da dokazi upućuju na miješanu prirodu ISI u 5-JIE i 10-NCEU zemljama te na postojanje i komplementarne i supstitucijske veze između trgovine i ISI u ovim zemljama

Macroeconomic, institutional and financial determinants of current account deficit in North Macedonia: Evidence from time series

The role of current account balances in macroeconomic policy is progressively high, especially in transition countries. Using yearly level data for a 1994-2022 period, based on co-integration analysis, this research empirically investigates the macroeconomic, institutional, and financial determinants of the current account deficit in North Macedonia. The results of the study reveal that a country’s current account deficit is significantly affected by domestic demand factors like real effective exchange rate, output gap, and trade openness, the fiscal-related factor of gross debt position, the institutional-related factor of economic freedom, legal and property rights, regulatory index, control of corruption, government effectiveness, as well as financial development captured by money supply. The study also finds out that the country has recorded more deficit in the current account than potentially expected during two time periods, the pre-financial crisis period 2001-2008 and during the COVID-19 crisis period 2019-2022

Determinants of foreign direct investment in Macedonia. Evidence from time series 1994 – 2008

Foreign Direct Investment has been considered as one of the main factors underlying the relative growth rates experienced by the Macedonian Economy. The raising trend of FDI inflow made possible the deep liberalization and transformation of an economy, thus increasing the degree of openness and integration of Macedonian economy into the world markets. In addition, the Macedonian attitude toward European Union (EU) membership has involved a new boost in FDI that would reflect the favorable prospects for the country’s economic future faced with the challenges of the Single European Market. Despite the crucial role played by FDI in the Macedonian economy, the available empirical evidence is rather scant, being in general of a descriptive nature. The aim of this paper is to provide some more robust evidence on the tested hypothesis related allocation over time of gross aggregate FDI inflows in the Macedonian economy. For this purpose, using quarterly data for the period 1994 – 2008 we employed cointegration analysis. This paper applies dynamic econometric methodology empirically to investigate the determinants affecting foreign direct investment (FDI) inflow in MacedoniaForeign Direct Investment, Macedonia, Error Correction Model, Cointegration Analysis.

Macroeconomic Challenges for Macedonia toward European Union and European Monetary Union membership - Copenhagen and Maastricht Criteria

In this paper we have analyzed the major macroeconomic challenges that Macedonia might face for becoming part of European Union countries, which are related to the capacity of Macedonian economy for meeting the prerequisites specified by European Commission in Copenhagen and Maastricht. In the context of Copenhagen criteria,using data from European Bank for Reconstruction and Development, we have analyzed the ability of Macedonian economy to cope with competitive pressures within EU structure. For this purpose, the main challenges of Macedonia toward EUmembership are: strengthening the competition, strengthening of suitable capacity ofhuman capital in the country, strengthening of non - bank financial institutions,reduce the shadow economy and built up a better infrastructure. The challenges that Macedonia has to solve will certainly result in progress related to market economy functionality and better prerequisites for strengthening private sector competitiveness. In the context of Maastricht criteria, using data from International Financial Statistics (IFS), National Bank of the Republic of Macedonia (NBRM) andState Statistical Office of RM, the study is focused on the Treaty provisions with regard to development in prices, fiscal balances and debt ratio, exchange rates and long terminterest rates. In this respect, economic developments in Macedonia are reviewed from a backward - looking perspective, covering in principle the past ten years.Economic convergence of Macedonia as a country under review in this paper is, also,examined in the context of the regular two - year cycle, which is in line with therequirements of article 122 (2), in conjunction with the article 121 (1) of the Treaty ofthe European Commission. In order to capture the convergence criteria, in the context of the influence of the real exchange rate, the study attempts to explore the pass through effect of exchange rate on inflation. We use quarterly data from 1998 to 2008 and employed Vector Autoregression and Granger Causality test of exchange rate on inflation. The results show that changes in exchange rate 'are causing' changes in the producer prices and retail prices, thus confirming the high import dependability of the domestic production

Determinants of Foreign Direct Ivestment inflow in South East European Countries - Panel Estimation

Abstract The first part of the paper examines the objective of the study. Following, in the second part we continuo with analyses of the importance of FDI to transition economies of (SEEC) South East European Countries. The study examines the trend and characteristics of FDI based on geographical distribution of FDI in the SEECs and compare its amount with Central East European Countries (CEECs). In the third part, following the theoretical approach of FDI and empirical evidence identified by literature review of FDI determinants, we tried to identify some of the main host country determinants of FDI inflow in SEECs. For this reason, we employed panel data estimation. Using a sample of SEECs and panel data technique under random effect specification the paper research the relationship between FDI, GDP growth, GDP per capita, number of inhabitants, trade openness, inflation, exchange rate, external debt and some technology development proxies

Economic Convergence between Macedonia and European Monetary Union Member States. The Five Maastricht Criteria

The euro was introduced on January 1, 1999. As of now, 16 European Union Member States have adopted the euro in line with the requirements of the Treaty, the most recent ones being Cyprus and Malta on January 1, 2008 and Slovakia on January 1, 2009. This implies that 11 Member States are at present not full participants in Economic and Monetary Union (EMU) and have not yet adopted the euro. In this paper, Macedonia is assessed the first time in respect of EMU‟s economic criteria. This is due to the fact that Macedonia wants to join the EU in the coming up years. It also has to be taken into account that Macedonia intends to adopt the euro in a second step in the near future whose currency has followed a high volatility over several years. This requires an analysis of how the Macedonia‟s economy would operate under conditions of irrevocably fixed exchange rates. The examination of the economic convergence process is highly dependent on the quality and integrity of the underlying statistics. The compilation and reporting of statistics, particularly government finance statistics must not be subject to political considerations. We suppose that the first analysis in this respect is not without any problems because of the data base available in Macedonia. However, we believe that our analysis of the Maastricht convergence criteria is very important and a milestone for the future economic policy decisions in Macedonia

Economic Convergence between Macedonia and European Monetary Union Member States. The Five Maastricht Criteria

The euro was introduced on January 1, 1999. As of now, 16 European Union Member States have adopted the euro in line with the requirements of the Treaty, the most recent ones being Cyprus and Malta on January 1, 2008 and Slovakia on January 1, 2009. This implies that 11 Member States are at present not full participants in Economic and Monetary Union (EMU) and have not yet adopted the euro. In this paper, Macedonia is assessed the first time in respect of EMU‟s economic criteria. This is due to the fact that Macedonia wants to join the EU in the coming up years. It also has to be taken into account that Macedonia intends to adopt the euro in a second step in the near future whose currency has followed a high volatility over several years. This requires an analysis of how the Macedonia‟s economy would operate under conditions of irrevocably fixed exchange rates. The examination of the economic convergence process is highly dependent on the quality and integrity of the underlying statistics. The compilation and reporting of statistics, particularly government finance statistics must not be subject to political considerations. We suppose that the first analysis in this respect is not without any problems because of the data base available in Macedonia. However, we believe that our analysis of the Maastricht convergence criteria is very important and a milestone for the future economic policy decisions in Macedonia

Economic growth in the Central East European Union and the Western Balkan countries in the course of Stability and Growth Pact and COVID-19

Ovo istraživanje ima za cilj utvrditi empirijsku procjenu odnosa između čimbenika održivosti fiskalne politike, poput fiskalnog deficita i gospodarskog rasta u zemljama zapadnog Balkana i zemljama Istočne Europske unije koristeći panel baze podataka za godišnji vremenski raspon od 2000. do 2021. godine. Empirijski model istražuje utjecaj fiskalnog deficita, uz ostale kontrolne varijable poput inflacije, školovanja, ukupnih ulaganja, otvorenosti trgovine i proizvodnog jaza na gospodarski rast u odabranoj skupini zemalja. Za potrebe istraživanja koristili smo statičku i dinamičku panel procjenu tehnike poput fiksnih učinaka s Driscol i Kraay standardnim greškama i sustav GMM. Nalazi potvrđuju da je fiskalni deficit značajno utjecao na razinu rasta u obje skupine zemalja. Osim toga, kada se fiskalne varijable dovedu u interakciju s COVID-19 dummy varijablama, fiskalni deficit rezultira značajnim i pozitivnim učinkom na gospodarski rast. Međutim, kada je fiskalni deficit u interakciji s razdobljem dužničke krize u Euro-zoni, on postaje čimbenik koji pogoršava rast. Ostale kontrolne varijable poput inflacije, otvorenosti trgovine, ukupnih ulaganja i proizvodnog jaza smatraju se važnim čimbenicima u objašnjavanju uspješnost rasta zemalja srednje i istočne Europe i zapadnog Balkana.This research aims to provide an empirical assessment of the relationship between fiscal policy sustainability factors, like fiscal deficit and economic growth in the Western Balkan countries and East European Union Countries, using panel-level data for the yearly time span from 2000-2021. The empirical model provides the impact of fiscal deficit, alongside other control variables like inflation, schooling, total investments, trade openness, and output gap on economic growth in the selected group of countries. For the purpose of research, we employed Static and dynamic panel estimation techniques like Fixed Effects with Driscol and Kraay standard errors and system GMM. The findings confirm that fiscal deficit has significantly affected the growth level in both groups of countries. In addition, when the fiscal deficit has interacted with the COVID-19 dummy, it appears as a growth-enhancing factor. However, when the fiscal deficit interacts with the Eurozone debt crisis period, it becomes a growth-deteriorating factor. Other control variables like inflation, trade openness, total investments, and the output gap are found important factors in explaining the growth performance of the Central East European and Western Balkan countries