Inward FDI in Bulgaria and its policy context

Abstract

After the fall of the country's communist regime, Bulgaria faced great political instability, changing prime ministers eight times between 1990 and 1997. Three economic crises were associated with slow economic growth or even recession as well as high inflation rates that weakened the Bulgarian economy and discouraged inward foreign direct investment (IFDI) flows in the 1990s. The establishment of a currency board in July 1997 stabilized the economy and greatly increased foreign participation in the privatization process, leading to a major increase in IFDI flows. The entry of Bulgaria into the European Union (EU) in 2007 was a catalyst for IFDI. Bulgaria received US$28 billion of IFDI flows in 2007-2010, compared to only US$ 24 billion during the transition period from 1990 to 2006. A low corporate tax rate (10%) and EU membership have played a decisive role in attracting IFDI to Bulgaria