Macroeconomic Dynamics and FDI Inflows: A Case Study of North Macedonia

Merita Zulfiu Alili () and Nevila Mehmetaj ()
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Merita Zulfiu Alili: South East European University

A chapter in Navigating Economic Uncertainty - Vol. 1, 2025, pp 271-289 from Springer

Abstract: Abstract The international investment landscape has undergone significant transformations with rapid growth in foreign direct investment (FDI) since the 1990s, but the recent crisis has resulted in declines in FDI. This study investigates the influence of macroeconomic indicators on the inflow of FDI in North Macedonia from 1997 to 2020. North Macedonia exhibits a limited potential and performance in attracting FDI. This paper employs panel data regression models, incorporating multiple tests to determine the suitable specification. Although the RE model is identified as the favoured option, the inclusion of results from the FE effects model serves as a robustness check. The empirical analysis verifies that gravity factors and corruption control significantly impact the inward FDI stock in North Macedonia. A limitation of the study is that it does not extensively explore the intricate dynamics between institutional development, legal frameworks, and FDI flows, leaving room for future research to deepen our understanding of these complex relationships. The anticipation is that FDI will contribute to increased employment, elevated wage levels, and enhanced working conditions in the host economy, driven by technological and managerial expertise. This research emphasizes the significant role of enhancing legal system efficiency as a key driver for foreign investors, highlighting the positive impact of improved corruption control on FDI and underscoring the importance of institutional quality, legal frameworks, and governance in attracting and retaining foreign investment.

Keywords: FDI; Transition economies; Panel data; Gravity model (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-031-73506-6_16

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DOI: 10.1007/978-3-031-73506-6_16

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