IMPORTANCE OF INSTITUTIONAL CAPACITY FOR ATTRACTING FDI IN THE WESTERN BALKAN COUNTRIES

Foreign direct investments are an integral part of open and effective international economic system, and they are the main catalyst for development. However, the benefits of a foreign direct investment are not the same in all local communities, sectors and countries. International investments and national policy are aimed at foreign direct investment and reap benefits of investment development. The challenges are primarily related to the host countries, and the establishment of an efficient and transparent policy to attract investment, and that must be paid to building human and institutional capacity for their implementation. Compared to the existing literature, which focuses mainly on the effects of political risk or corruption on FDI, our contribution is reflected in testing a wider range of institutional variables and their impact on undertaking investment projects by foreign investors. The analysis included 5 countries of the Western Balkans in the period of 22 years starting from 1998 until 2019. In the analysis of empirical data, we used the fixed effect model (FEM) for evaluating FDI. Also, the quality of the research is promoted using balanced panel data.