Improved Business Climate and FDI in the Western Balkans

Abstract

IntroductionThe complex political and economic transition in the countries of the Western Balkans in the past two decades has been accompanied by numerous economic and political asymmetrical strokes.During this complex process the governments of the countries of the Western Balkans (WB) with the assistance of the IMF and World Bank implemented the economic policies that aimed to achieve macroeconomic stabilization, transformation and privatization of state owned enterprises and to reform the economic system and public institutions.After two decades of implementation of intensive economic policies the countries of the Western Balkan have achieved macroeconomic stabilization but the results in reforming the economy, reforming the public sector and the public institutions are in insufficient level and continue to remain challenges for these countries in the future.In fact, the asymmetric development during the previous system and the low levels of economical growth in the first decade of the transition followed by increasing levels of unemployment, poverty, the large informal sector and fiscal evasion were the main obstacles in implementing deep institutional reforms and establishing a functional market economy in the Western Balkan's (Osmani & Mazllami, 2014).The process of economic and political transition in the Western Balkans due to achieved asymmetric results do not solve in approriate level three main problems of economic transition (Commander, 1991).1) Finding a new balance between private sector and public sector,2) Finding the balance between profits and wages in the private sector, and3) Finding the balance between monetary and fiscal policy within the strategy that aim macroeconomic stabilization and economic development.Three balances realized at transition countries of the Western Balkans are in suboptimal levels as a result of numerous deficits and economic and social problems, lack of voluminous local and foreign investment and significant delays in the implementation of economic and institutional reforms as a result of lack of national political consensus.Delays and poor quality of structural reforms still remain as the major obstacles in attracting foreign investment although as serious progress was made in terms of creating a more favorable environment business largely of formal nature.As a consequence, that indicator "Ease of Doing Business" does not include areas such as: the level of corruption, independence of the judiciary, the size of the market, political and economic risk and functionality of public institutions, this indicator does not reflect the full attractiveness of business environement as crutial precondition in attracting foreign direct investment.Despite the fact that Macedonia on the basis of the indicator, Doing Business, in the period 2010-2015 is listed as a leader in the West Balkans, country has realized the lowest level of foreign direct investment in volume and quality compared to the West Balkans and EU countries.Due to the low level of foreign direct investment, the lack of national investment, the hesitation of the banking sector in financing new investments as a result of the growth of bad loans and considerable reduction of economic remittances Macedonia remains as the country with the highes level of unemployment and poverty in Europe.The research aims to analyze the correlation between the level of ranking of countries according to the indicator, Doing Business, and the level of foreign direct investments in countries such as Croatia and Bulgaria that are part of the EU and the countries aspiring to join the EU with special emphasis in the case of the Republic of Macedonia.The importance of correlation between the quality of business environment and attraction of foreign direct investment is linked closely with the aspiration of the countries of West Balkans for integration into the EU as a precondition have the fulfillment of the Maastricht and Copenhagen criteria. …