Strategic implications of foreign direct investment, exports, and financial development for sustainable economic growth in Serbia: evidence from ARDL and VECM models

Parežanin, Miloš and Minović, Jelena and Janković, Irena and Jednak, Sandra and Dudić, Branislav (2026) Strategic implications of foreign direct investment, exports, and financial development for sustainable economic growth in Serbia: evidence from ARDL and VECM models. Strategic Management. ISSN 2334-6191

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Abstract

Background: Small open economies must continuously align external opportunities (foreign capital and export markets) with internal resource capabilities (financial sector maturity) to secure long-term growth. Understanding the interaction among these factors is essential for designing effective development and investment strategies. Purpose: The paper sets out to uncover the real drivers of economic growth in Serbia and, above all, to offer policymakers and business leaders clear, evidence-based recommendations on the most promising growth strategy and on how to make the country systematically more attractive to investors. Study design/methodology/approach: The study employs annual time-series data for Serbia. The analysis applies the Autoregressive Distributed Lag (ARDL) bounds testing approach to examine long-run and short-run dynamics, complemented by a Vector Error Correction Model (VECM) to assess Granger causality among the variables. Findings/conclusions: The findings reveal stable long-run relationships, with exports driving economic growth in the long run and foreign direct investment exerting positive effects only in the short run. Causality analysis identifies short-run causality from foreign direct investment to economic growth and financial development, as well as long-run causal interdependence among economic growth, foreign direct investment, and financial development. Limitations/future research: The study is limited by the use of aggregate data and a single-country focus. Future research could include additional variables or extend the analysis to other transition and Western Balkan economies.

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