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However, larger share of the foreign direct investment was due to the
privatization process, whereas the greenfield investment in most of the countries
has been modest. Most of the foreign capital in the form of acquisition went into
the service sectors, such as trade and financial related activities, or
telecommunications and power generation and distribution. Greenfield investment
has mostly been resource or cost efficiency motivated (lower labor costs).
Certain sectors prove to be more interesting for the foreign investors
compared to others. Empirical evidences show that the impact of sector distribution
of FDI to the host country’s economy could prove to be more important than the
total volume of inflows. Most of FDI in Croatia went to the sector of financial
intermediation, telecommunication and chemical industry; financial intermediation,
telecommunication in Serbia as well as transport; electricity, telecommunication
and manufacture of metal products in Macedonia; financial intermediation and
tourism in Montenegro; telecommunication, transport and service sector in
Albania.
2. The impact of capital inflows on the growth rate
in Western Balkan economies
In order to investigate the impact of foreign investment on the improvement
of the growth rates in the overall Western Balkan region, we examined the
influence of total foreign capital inflows as an aggregate of FDI, portfolio
investment and other investment, as well as the impact of the gross fixed capital
formation on the gross domestic product for the time period 1999-2006 in Albania,
Croatia and Macedonia. 41 The result of the regression analysis is as follows:
g t
= − - 39,322 - 0,078g t -1
− 2,
957TFCI
+ 7,
480GFCF
g t - growth rate in period t
t −1
(5,909) (0,102) (1,065) (0,995)
g - growth rate in period t-1
TFCI- Total foreign capital inflows as % of GDP (FDI , portfolio investment, other
investment)
GFCF - gross fixed capital formation as % of GDP
Source: EUROSTAT
Time period - 1999-2006
Standard error in parenthesis
41 Data for Serbia, Montenegro and Bosnia and Herzegovina are incomplete
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