Impact of Investment Environment on Foreign Direct Investment (FDI): Case of the Republic of Kosovo

Abstract

The main objective of this paper is to investigate the impact of the investment environment on Foreign Direct Investment (FDI) in the Republic of Kosovo, by employing IV-GMM times series estimator, where Control of Corruption and Political Stability, Absence of Violence/Terrorism and Distance to frontier score (Doing Business) are used as main variables, while as pull factors are used GDP per capita, unemployment rate and profit tax rate.Further, The empirical findings reveal that Control of Corruption and Political Stability and Absence of Violence/Terrorism have positive and significant effect on attracting FDI flows, while Distance to frontier score (Doing Business) has shown negative effect on FDI flows in the case of Republic of Kosovo for the time period 2009q1 -2016q4.Furthermore, This paper for the first time tries to address the Kosovo case, using the IV-GMM estimator method and handling the above mentioned variables over this time period, presenting a unique case with regard to the Republic of Kosovo because, from our best knowledge, has not been addressed before such nexus for the case of Kosovo.In addition, This paper will also contribute to the existing literature rather than solving the existing debate among scholars, by using these measures to investigate their impact on attracting FDI in a transition country such as the Republic of Kosovo.

Keywords: FDI, investment environment, IV-GMM, time series, transition.

DOI: 10.7176/RJFA/10-10-07

Publication date:May 31^st 2019