re an inhospitable area for European FDI due to the adverse effects of the Yugoslav wars, the nature of the regime of Slobodan Milosevic, and ethno-religious tensions among Serbs, Croats, Montenegrins, Bosnian, Albanian, Kosovar and Macedonian Muslims and Christians, as well as the lack of economic viability of most of the states in the area. The nations of the Southern tier, Bulgaria and Romania, after a slow start, have made considerable progress in privatizing and otherwise restructuring their economies after near a half century of communist misrule but remain beset with serious economic problems. Over the long run, the Balkan nations are unlikely to become a major magnet for European FDI until they are more closely integrated with the economies of the rest of Europe, but progress toward that goal is likely to be slow and largely dependent on internal developments in the most important lagging economies, especially Serbia and Romania.
I. Introduction
FDI Defined. The United Nations Conference on Trade and Development (UNCTAD) defined FDI as "investment involving a long-term relationship and reflecting intent and control by a resident entity (the foreign direct investor or parent enterprise) of one country (foreign affiliate/resident) in a country other than of the foreign direct investor. It includes equity investments as well as non-equity arrangements that give rise to the control of assets used in the control of assets used in production of assets abroad" (UNCTAD 7). FDI is different from foreign portfolio investments, such as non-participating minority equity investments and debt, long or short-term. Good examples of FDI are foreign branches, subsidiaries or joint ventures in which multinational enterprises (MNEs) or trans-national corporations own a controlling share or in which they share control.
Successful FDI is a dynamic force for economic growth. It generates higher incomes, employment ...