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Distance as Determinant of FDI in Transition Countries. The Case of Serbia

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Economic and Financial Challenges for Balkan and Eastern European Countries

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Abstract

The aim of this paper is to define the meaning and the role of distance in determining cross-border investment transactions. Specifically, it aims to use Serbia as an individual country case demonstrating the implementation of a model based on Ghemawat’s culture, administrative, geographic, and economic distances (CAGE) framework for testing the key distance-related determinants of the foreign direct investment (FDI) inflows to a country. Since 2000, Serbia has embarked on an extensive political and economic reforms program, having achieved democratic stability by now. Its economic growth has been mainly driven by foreign direct investments. This paper analyzes how each one of distance dimensions, i.e., cultural, administrative, geographic, and economic, affects FDI inflows to Serbia. The empirical application of the model shows that cultural distance affects FDI flows negatively, while administrative, geographic, and economic distances have a positive effect on FDI inflows to Serbia.

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Author information

Authors and Affiliations

  1. University of Macedonia, Thessaloniki, Greece

    Dimitrios Kyrkilis & Natasa Grujic

Authors
  1. Dimitrios Kyrkilis
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  2. Natasa Grujic
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Corresponding author

Correspondence to Dimitrios Kyrkilis .

Editor information

Editors and Affiliations

  1. Department of Risk and Insurance, Warsaw School of Economics, Warsaw, Poland

    Marietta Janowicz-Lomott

  2. Collegium of Management and Insurance, Poznań University Economics and Business, Poznań, Poland

    Krzysztof Łyskawa

  3. International Hellenic University, Serres, Greece

    Persefoni Polychronidou

  4. International Hellenic University, Kavala, Greece

    Anastasios Karasavvoglou

Appendices

Appendix 1

Aggregation of the manufacturing industry according to technological intensity and based on NACE Rev.2

High technology

• Manufacture of basic pharmaceutical products and pharmaceutical preparations

• Manufacture of computer, electronic, and optical products

• Manufacture of air and spacecraft and related machinery

Medium-high technology

• Manufacture of chemicals and chemical products

• Manufacture of weapons and ammunition

• Manufacture of electrical equipment

• Manufacture of machinery and equipment n.e.c.

• Manufacture of motor vehicles, trailers, and semi-trailers

• Manufacture of other transport equipment excluding building of ships and boats and excluding manufacture of air and spacecraft and related machinery

• Manufacture of medical and dental instruments and supplies

Medium-low technology

• Reproduction of recorded media

• Manufacture of coke and refined petroleum products

• Manufacture of rubber and plastic products

• Manufacture of other non-metallic mineral products

• Manufacture of basic metals

• Manufacture of fabricated metal products, except machinery and equipment excluding manufacture of weapons and ammunition

• Building of ships and boats

• Repair and installation of machinery and equipment

Low technology

• Manufacture of food products

• Manufacture of beverages

• Manufacture of tobacco products

• Manufacture of textiles

• Manufacture of wearing apparel

• Manufacture of leather and related products

• Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials

• Manufacture of paper and paper products

• Printing and reproduction of recorded media excluding reproduction of recorded media

• Manufacture of furniture

• Other manufacturing excluding manufacture of medical and dental instruments and supplies

  1. Source Eurostat, http://ec.europa.eu/eurostat/statisticsexplained/index.php/Glossary:High-tech_classification_of_manufacturing_industries

High tech knowledge-intensive services

· Motion picture, video and television program production, sound recording, and music publishing activities

· Programming and broadcasting activities

· Telecommunications

· Computer programming, consultancy, and related activities

· Information service activities

· Scientific research and development

  1. Source Eurostat, http://ec.europa.eu/eurostat/statistics-explained/index.php/Glossary:Knowledge-intensive_services_(KIS)

Appendix 2

World Bank Governance Indicators to measure ID

 

Name of the WGI

Definition

Component of ID

1.

Government effectiveness

The quality of public services; the capacity of the civil service and its independence from political pressures; and the quality of policy formulation

Regulative

2.

Regulatory quality

The ability of the government to provide sound policies and regulations that enable and promote private sector development

Regulative

3.

Rule of law

The extent to which agents have confidence in and abide by the rules of society, including the quality of contract enforcement and property rights, the police, and the courts, as well as the likelihood of crime and violence

Regulative

4.

Voice and accountability

The extent to which country’s citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association, and a free media

Normative

5.

Quality political stability and absence of violence

The likelihood that the government will be destabilized by unconstitutional or violent means, including terrorism

Normative

  1. Source Kaufmann et al. (1999)

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Kyrkilis, D., Grujic, N. (2020). Distance as Determinant of FDI in Transition Countries. The Case of Serbia. In: Janowicz-Lomott, M., Łyskawa, K., Polychronidou, P., Karasavvoglou, A. (eds) Economic and Financial Challenges for Balkan and Eastern European Countries. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-39927-6_4

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