Foreign direct investment in Bosna and Herzegovina: lingua franca or perplexity of original sin

Petrović, Vesna and Malović, Marko (2009) Foreign direct investment in Bosna and Herzegovina: lingua franca or perplexity of original sin. In: Business Opportunities in Serbia : the case of Italian business sector and the role of management education. Belgrade Banking Academy and Institute of Economic Sciences, Belgrade, pp. 275-284. ISBN 978-86-9852-025-9

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Abstract

The aim of this paper is to investigate the nature and impact of foreign direct investment (FDI) inflows in Bosnia and Herzegovina (BiH). In stark contrast with theoretical predictions found in previous literature on FDI/MNE in small underdeveloped transition economies, even after controlling for Serbian M:TS’s investment in Republic of Srpska’s M:Tel, horizontal inbound FDI have been predominant in relation to vertical ones. However, in spite of diminishing tariffs and other international trade costs, as well as abundant natural resources and comparatively cheaper labour, all typically favourable for attracting vertical FDI, dominance of horizontal FDI recorded by available data for Bosnia and Herzegovina does not seem to go hand in hand with decrease of imports, once again contradicting the standard theoretical paradigm. After reviewing recent scientific background relevant for the topic, we analyse empirical data on FDI in BiH in recent years. The main contribution of the paper is in trying to reconcile a posteriori empirical findings with a priori theoretical expectations regarding the case of BiH.

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