Foreign Direct Investment in Bosnia and Herzegovina
This paper analyzes the importance of foreign direct investment (FDI) as a determinant of economic development in Bosnia and Herzegovina, comparing FDI trends with neighboring countries and European transition economies. The paper traces FDI data from the post-war period to recent years, examining progress, setbacks, and macroeconomic impacts. It evaluates government initiatives, institutional frameworks, and strategic policies designed to attract foreign investors and improve the country's international image. The paper also identifies structural barriers and reasons why FDI inflows remain relatively low despite Bosnia and Herzegovina's economic potential and investment opportunities.
- Introduction: FDI as economic growth driver and Bosnia's investment challenges
- Foreign Direct Investment: Definition and Role: Forms of FDI and its role in developing economy integration
- Institutional Framework and Government Policy: Bosnia's investment promotion agencies and legal protection agreements
- FDI Trends and Economic Impact: FDI's growing role in global business and economic integration
- Barriers to Investment and Conclusions: Structural obstacles limiting FDI despite country potential
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What makes this paper effective
- Grounds the analysis in concrete institutional detail—FIPA, MOFTER, IGA—rather than treating FDI as abstract concept, showing how Bosnia and Herzegovina has structured its investment recruitment apparatus.
- Traces both macro-level economic theory (FDI as engine of growth) and micro-level legal frameworks (36 bilateral/multilateral protection agreements), creating a multi-level examination of the issue.
- Acknowledges historical context (post-war instability) as a material barrier to FDI, moving beyond purely economic analysis to geopolitical and institutional factors.
Key academic technique demonstrated
This paper employs comparative institutional analysis, positioning Bosnia and Herzegovina's FDI environment alongside transition economies and neighboring countries to highlight relative performance and policy gaps. This comparative framing allows the reader to understand Bosnia's challenges not in isolation but as part of a broader regional and systemic pattern, strengthening the credibility of the analysis.
Structure breakdown
The essay moves from theoretical foundation (FDI as growth engine) through institutional inventory (FIPA, MOFTER, legal frameworks) to identified barriers (political instability, incomplete transition, weak business environment). This progression from concept to structure to problem diagnosis allows the conclusion to emerge naturally from evidence rather than assertion.
Introduction
Foreign Direct Investment (FDI) is considered to be an engine for economic growth (Balasubramanyam, Salisu, and Sapsford 1999; Bevin and Estrin 2004; Demekas, Horvath, and Ribakova 2007), and as such it is pursued actively by government agencies such as FIPA, the Foreign Investment Promotion Agency of Bosnia and Herzegovina (Mustafic-Cokoja 2010).
Foreign direct investment can be described as a company from one country making a physical investment outside its home country, an investment abroad, usually where the company being invested in is controlled by the foreign corporation, which is considered an indirect investment. There are several forms that can be used for capital investing abroad: acquisition of a foreign firm through mergers and acquisitions, investment in a joint venture with a local firm, or construction of a facility as wholly owned operation. FDI has been considered one of the basic motors of economic development of many less developed countries.
However, the war, the perception of political instability, incomplete transition in a country, a poorly integrated internal market, and the complex and unfavorable business environment have combined to make Bosnia and Herzegovina successful in attracting only very limited foreign investments to date. This paper examines the importance of foreign direct investment in Bosnia and Herzegovina in terms of the important determinants of economic development, comparing them with neighboring countries and transition countries in Europe. It explores all FDI data from the post-war period to recent years, examining their progress and setbacks, as well as the impact of FDI on macroeconomic factors and country development. The paper also evaluates the work of government agencies and strategic policies designed to attract investment and create a better international image for the country in the global FDI marketplace.
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