international scientific conference · méxico city, méxico behavior and evolution of foreign...

INSTITUTE OF INTERNATIONAL

POLITICS AND ECONOMICS

DEVELOPMENT POTENTIALS OF FOREIGN DIRECT INVESTMENT: INTERNATIONAL EXPERIENCES

International Scientific Conference

Belgrade, 16–17. September 2010 Institute of International Politics and Economics

Makedonska 25, 1st floor, Belgrade

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Scientific Board:

Prof. Dragana Mitrović, Ph.D., president

University of Belgrade, Faculty of Political Sciences

Belgrade, Serbia

Anima Puentes Santiaga, M.A.

Universidad Nacional Autónoma de México, Faculdad de Economía

México City, México

Prof. Taro Tsukimura, Ph.D.

Doshisha University, Faculty of Policy Studies

Kyoto, Japan

Prof. Ching-Sung Wu, Ph.D.

National Taiwan University, College of Business

Taipei, Taiwan

Prof. Svetlana P. Glinkina, Ph.D.

Russian Academy of Sciences, Institute of Economy

Moscow, Russia

Prof. Muneesh Kumar, Ph.D.

University of Delhi, Department of Financial Studies

New Delhi, India

Prof. Nihal Tuncer, Ph.D.

Istanbul University, Faculty of Economics

Istanbul, Turkey

Prof. Milica Uvalić, Ph.D.

University of Perugia, Faculty of Political Sciences

Perugia, Italy

Prof. Jolanta Zombirt, Ph.D.

Jagiellonian University in Krakow, Centre for European Studies

Krakow, Poland

Prof. Joachim Becker, Ph.D.

Vienna University of Economics and Business

Vienna, Austria

Miklós Szanyi, Ph.D.

Hungarian Academy of Sciences, Institute for World Economics

Budapest, Hungary

Assist. Prof. Vlatka Bilas, Ph.D.

University of Zagreb, Faculty of Economics

Zagreb, Croatia

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Prof. Irena Kikerkova, Ph.D.

University Ss. Cyril and Methodius - Skopje, Faculty of Economics

Skopje, Macedonia

Jelica Minić, Ph.D.

Regional Co-operation Council

Sarajevo, Bosnia & Herzegovina

Prof. Ljiljana Maksimović, Ph.D.

University of Kragujevac, Faculty of Economics

Kragujevac, Serbia

Duško Lopandić, Ph.D.

Ambassador of the Republic of Serbia in the Republic of Portugal

Lisbon, Portugal

Prof. Edita Stojić-Karanović, Ph.D.

International Scientific Forum “Danube - River of Cooperation”

Belgrade, Serbia

Duško Dimitrijević, Ph.D.

Institute of International Politics and Economics, Belgrade, Serbia

Miroslav Antevski, Ph.D.

Institute of International Politics and Economics, Belgrade, Serbia

Organizing Committee:

Dobrica Vesić, Ph.D., president

Institute of International Politics and Economics, Belgrade

Miroslav Antevski, Ph.D., coordinator


Mina Zirojević Fatić, M.A.


Nevena Prolović


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CONFERENCE AGENDA Thursday, September 16

10.00–10.10 Opening Session:

Duško Dimitrijević, Ph.D., Welcome Speech of the Director of the Host Institute

Mr. Lutz Kober, Head of the Hanns Seidel Foundation Project in Serbia and Montenegro

10.10–13.00 First working session:

GLOBAL EXPERIENCES AND LESSONS

Chairwoman: Prof. Dragana Mitrović

Prof. Chen Libing, Ph. D. Zhongnan University of Economics and Law, Department of Economics Hongshan District, Wuhan, China 430073

The Advers Aspect of FDI to Developing Countries - from China's Experience

Prof. Hutao Yang, Ph.D. Zhongnan University of Economics and Law, Department of Economics Hongshan District, Wuhan, China 430073

Good or Evil: Export-Oriented Economy and China Economy

Prof. Dragana Mitrović, Ph.D. Executive Director of the Centre for Asian and Far Eastern Studies

University of Belgrade, Faculty of Political Sciences, Belgrade, Serbia

Significance and Limits of the FDI in China's Reform and Opening Up Policy Implementations

Prof. Svetlana Glinkina, Ph.D. Deputy Director, Institute of Economics

Russian Academy of Sciences, Moscow, Russia

Natalia Kulikova, Ph.D. Director of the Center for East European Studies, Institute of Economics, Russian Academy of Sciences, Moscow, Russia

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Russia's Integration into the Global Financial System and Outward Foreign Direct Investment (OFDI)

11.20–11.50 Coffee Break

Santiaga Anima Puentes, M.A. Coordinadora Académica Centro de Estudios Económicos de la Unión Europea-México, Universidad Nacional Autónoma de México, Faculdad de Economía, México City, México

Behavior and Evolution of Foreign Direct Investment in the European Union to Mexico, 1999–2009.

Prof. Ljiljana Maksimović, Ph.D. Prof. Gordana Radosavljević, Ph.D.

Assist. Prof. Gordana Marjanović, Ph.D. University of Kragujevac, Faculty of Economics, Kragujevac, Serbia

The Global Strategy of TNC in Oligopolistic Competition

Prof. Slobodan Cvetanović, Ph.D. University of Niš, Faculty of Economics, Niš, Serbia

Dušan Cvetanović University Alfa, Belgrade, Serbia

Predrag Belej Niš Expert Team, Niš, Serbia

Spillover Effect of Foreign Direct Investment and Endogenous Economic Growth

Assist. Prof. Dobrosav D. Radovanović, Ph.D.

University of Business Studies, Banja Luka, Bosnia & Herzegovina

Asist. Nikola D. Radovanović, M.Sc. High School of Modern Business, Belgrade, Serbia

The Effects of TNC's Foreign Direct Investment

Miroslav Antevski, Ph.D., Research Fellow Institute of International Politics and Economics, Belgrade, Serbia

Foreign Direct Investment and the Adoption of New Knowledge

13-00–14.00 Cocktail/lunch in the Library of the IIPE

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14.00–17.30 Second working session:

EUROPEAN EXPERIENCES

Chairwoman: Dr. Natalia Kulikova

Prof. Joachim Becker, Ph.D.

Prof. Rudy Weissenbacher, Ph.D. Wirtschaftsuniversität Wien, Austria Growth Models, FDI and Crisis in Central, Eastern and South Eastern Europe

Natalia Kulikova, Ph.D.

Director of the Center for East European Studies, Institute of Economics

Russian Academy of Sciences, Mosco, Russia Mikhail Lobanov, Ph.D., Researcher Center for East European Studies, Institute of Economics

Russian Academy of Sciences, Moscow, Russia The Role of FDI in the Economic Modernization of Central and Eastern European EU Member States: View from Russia

Prof. Dražen Derado, Ph.D. University of Split, Faculty of Economics, Split, Croatia

Determinants of FDI Inflows in Transition Economies


Assist. Prof. Ioana Vadasan, Ph.D. Assist. Prof. Nicoleta Sirghi, Ph.D. West University of Timisoara, Faculty of Economics and Business Administration, Timisoara, Romania The Labour Force, as the Attractive Factor for Foreign Direct Investment: the Case of Romania

Tajana Barbić, M.Sc., Research Assistent

Iva Čondić-Jurkić, M.Sc., Research Assistant Institute of Economics, Zagreb, Croatia Foreign Direct Investment and Stock Markets Development in CEE Countries

Žaklina Novičić, M.Sc., Research Associate

Ivona Lañevac, M.Sc., Research Associate

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Institute of International Politics and Economics, Belgrade, Serbia Foreign Direct Investment in the EU Law after the Lisbon Treaty

Assist. Prof. Srñan ðinñić, Ph.D. University of Kragujevac, Faculty of Economics, Kragujevac, Serbia Corporate Tax Reform in the EU and Growth of Investment Activities

18.00 Common Dinner

Friday, September 17

10.00–13.30 Third working session:

WESTERN BALKANS

Chairwoman: Prof. Irena Kikerkova

Prof. Slobodan Cvetanović, Ph.D. University of Niš, Faculty of Economics, Niš, Serbia Danijela Despotović, Ph.D.

University of Kragujevac, Faculty of Economics, Kragujevac, Serbia Dušan Cvetanović University Alfa, Belgrade, Serbia Domestic Savings and Foreign Direct Investment in the New Model of Economic Growth of the Western Balcan Countries

Prof. Irena Kikerkova, Ph. D. Ss. Cyril and Methodius University, Faculty of Economics, Skopje, Macedonia

Foreign Direct Investment Outlook for the Republic of Macedonia

Dražen Koški, Ph.D. University Josip Juraj Strossmayer of Osijek, Faculty of Economics

Osijek, Croatia Financial Dichotomy of Foreign Direct Investment: Foreign Exchange Inflow and Foreign Exchange Outflow

Prof. Jasmina Osmanković, Ph.D. University of Sarajevo, Faculty of Economics, Sarajevo, Bosnia & Herzegovina

Jasmin Hošo, Ph.D.

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Tondach, Sarajevo, Bosnia & Herzegovina

Development Potential of Foreign Direct Investment: the Experience of Company Tondach


Assist. Prof. Vlatka Bilas, Ph.D. Sanja Franc, univ.spec.oec.

Danijela Ćenan, M.Sc. University of Zagreb, Faculty of Economics, Zagreb, Croatia

Foreign Direct Investment Incentives in Croatia and Selected Countries Prof. Pero Petrović, Ph.D., Professorial Fellow Institute of International Politics and Economics, Belgrade, Serbia General Characteristicfs of Foreign Direct Investment in Serbia

Goran Nikolić, Ph.D., Research Fellow Institute of European Studies, Belgrade, Serbia Significance of FDI Attraction for Export and Competitiveness Growth ond Balance of Payment Sustainability

Prof. Hasiba Hrustić, Ph.D., Professorial Fellow

Institute of International Politics and Economics, Belgrade, Serbia The Foreign Direct Inestment and Tax Environment in Serbia

Prof. Gordana Milovanović, Ph.D.

University of Kragujevac, Faculty of Economics, Kragujevac, Serbia Possible Impact of EU Strategy for the Danube Region on Future FDI Inflow in the Western Balkans Region

13.30 Closing session

The official languages of the conference are English and South Slavic languages (Bosnian, Croatian, Montenegrin and Serbian).

Time for speach: 15–20 minutes

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ABSTRACTS

Prof. Chen Libing, Ph. D. Zhongnan University of Economics and Law

Department of Economics

Hongshan District, Wuhan, China 430073

THE ADVERS ASPECT OF FDI TO DEVELOPING COUNTRIES - FROM CHINA'S EXPERIENCE

Since the end of 1970s，China has sustained rapid economic growth. FDI has

made not only direct contribution to economic growth but also indirect contribution by its investment guide. However, FDI has also brought negative impact on the Chinese economy. After entering the 21st century, this impact became more and more serious, such as environmental pollution, threat to industrial safety, profit transfer, violation of workers rights, etc. So, we can not just see the positive effects of FDI, and should be concerned about the negative effects else. This paper analyses the reasons of FDI’s negative impacts, and gives some advice to rectify such situation. Prof. Hutao Yang, Ph.D. Zhongnan University of Economics and Law

Department of Economics

Hongshan District, Wuhan, China 430073

GOOD OR EVIL: EXPORT-ORIENTED ECONOMY AND CHINA ECONOMY

Since 2000, China has become a global export powerhouse and the biggest recipient of foreign direct investment among developing countries. The growth of the country’s gross domestic product (GDP) has averaged almost 10 percent a year. The West’s biggest misconception about China is that its growth has been the product of globalization .This paper challenges this opinion. To some extent, the laudable achievements of China which based on export- driven and FDI is at cost of domestic liberalization and the development of National industry. This development mode which depended too much on the exportation as well as FDI also has a potential risk of weakening the National competitive strength and it is not propitious for further expansion of China, for a continental country such as China, the most important forces come from within rather than foreign trade. It is the time for China to switch its nation's economic development pattern.

Key words: export-oriented , economy, China economy, domestic liberalization

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Professor Dragana Mitrović, Ph.D. Executive Director of the Centre for Asian and Far Eastern Studies

University of Belgrade, Faculty of Political Sciences, Belgrade, Serbia

SIGNIFICANCE AND LIMITS OF THE FDI IN CHINA'S REFORM AND OPENING UP POLICY IMPLEMENTATIONS

During the first 30 years of the period of reforms and opening up, China’s economy has achieved the highest continuous economic growth in modern economic history. Inseparable part of this success story was the gross amount as well as the effects of the FDI on the Chinese economy, direct and indirect ones. Obvious part of the opening up was creation of the attractive investment environment, with SEZ and costal open-cities, as well as other, widely spread preferential policies in different provinces, cities and autonomous regions that tended to put China high on the world map of the FDI destinations. This paper argues that even so, the main source of the rapid and sustainable growth of China’s economy were neither FI, nor FDI, but high domestic savings and domestic investment.

Prof. Svetlana Glinkina, Ph.D.

Deputy Director, Institute of Economics


Natalia Kulikova, Ph.D. Director of the Center for East European Studies, Institute of Economics


RUSSIA’S INTEGRATION INTO THE GLOBAL FINANCIAL SYSTEM AND OUTWARD FOREIGN DIRECT INVESTMENTS

(OFDI)

The paper focuses on assessing the positions and perspectives of Russia in the global financial system. We consider strong position in world capital markets as an important factor for sustainable growth and diversification of the national economy, enhancing the role of Russia in the global economy. The high relevance of this issue for our country was shown by a global crisis, when the Russian economy was severely affected because of systemic deficiencies in the model of integration into the world finance.

Santiaga Anima Puentes, M.A. Coordinadora Académica Centro de Estudios Económicos de la Unión Europea-México, Universidad Nacional Autónoma de México, Faculdad de Economía

México City, México

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BEHAVIOR AND EVOLUTION OF FOREIGN DIRECT INVESTMENT IN THE EUROPEAN UNION TO MEXICO, 1999-

2009.

Foreign Direct Investment today takes its greater relevance in a world where the flow of capital between countries is carried out more easily thanks to the widespread financial liberalization, where the liberal economic theories take it as a determining factor for national economic development. Hence the importance of analyzing the recent developments in foreign direct investment from the European Union for Mexico and its states, under the signature of a Comprehensive Agreement with the European Union in 2000 and the crisis that occurred over the decade of study.

Prof. Ljiljana Maksimović, Ph.D. Prof. Gordana Radosavljević, Ph.D.

Assist. Prof. Gordana Marjanović, Ph.D. University of Kragujevac, Faculty of Economics, Kragujevac, Serbia

THE GLOBAL STRATEGY OF TNC IN OLIGOPOLISTIC COMPETITION

Until the 1990s it had been thought that Dunning's approach of TNC strategy was a wide theoretical framework for economic analysis of TNC investment activities. Therefore, the traditional TNC strategies seek resources, markets, efficiency and assets.

A new global strategy of TNC is based on the concept that TNCs are global players in oligopolistic competition. It combines and integrates all the strategies into one, and points out the importance of strategic management of foreign direct investment (FDI) in TNC.

The paper begins with the hypothesis that foreign direct investment (FDI) is managed on the basis of strategic dependence between TNC and their global positioning among competitors within oligopolies.

The increase of FDI in developing countries and transitional economies is the consequence of TNC strategic interactions, such as: building a dominant position in low competitive markets, providing clues about the intentions of main competitors, diminishing the role of local firms as threatening global competitors, or client-following strategy, etc.

Key words: TNC, traditional strategies, global strategies, foreign direct investment (FDI)

Prof. Slobodan Cvetanović, Ph.D. University of Niš, Faculty of Economics, Niš, Serbia

Dušan Cvetanović

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University Alfa, Belgrade, Serbia

Predrag Belej

Niš Expert Team, Niš, Serbia

SPOILLOVER EFFECT OF TECHNOLOGY OF FOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH

ENDOGENOUS

Endogenous growth explanations indicate newer approah in the analysis of processes of economic progress of countries. One of the major routes of endogenous growth theory is related to complex technological changes.

The monopoly of applicable technology has modern transnational corporations that indicate the key institutional holders of foreign direct investment. Empirical data shows that foreign direct investment in the respectable age of globalization determinant of economic growth endogenous nature. Because it is a proprietary investments, it is logical that their movement follows the transfer of available technologies. The higher the quantum of technological knowledge in their possession, the more productive and management solutions will be transferred to the host country. With other conditions unchanged, this will mean a more pronounced effect and spillover of knowledge, and consequently a more intensive economic growth of the host country. In a word, in the context of research based on endogenous growth and technological change, suggesting that the macroeconomic policy development can in principle affect the acceleration of economic growth rates in two main ways: a) stimulating the process of creation and diffusion of technological change by supporting research and development activities in the country, and b) creating a stimulating environment for effective technology transfer, including the attraction of foreign direct investment by transnational corporations in the field of new technologies, which are characterized by a pronounced spillover effects of knowledge.

Key words: technology, spillover effect of technology, endogenous growth, foreign direct investment.

Assist. Prof. Dobrosav D. Radovanović, Ph.D. University of Business Studies, Banja Luka, Bosnia & Herzegovina

Asist. Nikola D. Radovanović, M.Sc.

High School of Modern Business, Belgrade, Serbia

THE EFFECTS OF TNC'S FOREIGN DIRECT INVESTMENT

Transnational corporations to the fullest extent, and together with international financial institutions and organizations, the IMF, WB and WTO primarily trigger the globalization process and have a crucial impact on the global economic relations. They represent the highest stage in the development of the company as a business entity. Combining economic resources by origin with foreign capital, management and raw materials, thry go beyond the framework of a national market and become the most important factors in the globalized world market. TNC also combine various elements of

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the economic system of the different countries in which they perform their business (taxation, antitrust legislation, etc.) and using economies of scale, manage to find so called optimal mix in relation to criteria of efficiency, which makes them superior in the world market. TNC at the same time represent a specific form of dialectical unity of opposites: on the one hand, given technological and scientific progress, the development of productive forces and economic connections, and on the other hand, given the main levers of power (capital, technology, information, political influence), and many phenomena (starting with monopoly, via speculation to exploitation). Within this, the paper made an analysis of the effects of investment by TNCs as viewed from the standpoint of the country, receiver of international investment.

Key words: transnacinal corporations, foreign direct investment, effects, market, capital. Miroslav Antevski, Ph.D., Research Fellow Institute of International Politics and Economics, Belgrade, Serbia

FOREIGN DIRECT INVESTMENT AND THE ADOPTION OF NEW KNOWLEDGE

This paper is dealing with the problem of adoption of new knowledge as the core determinant of development and international competitiveness. Differences between countries in the level of GDP are largely caused by differences in the levels of technological development and the degree of productivity. R&D sectors and innovative activity are emerging as the key determinants of productivity growth and thus the international competitiveness of nations. The international diffusion of knowledge is an important contributor to the innovation in the national country. Different channels of knowledge diffusion have a different developmental potentials for the host country. FDI and TNCs investment are considered to be a large potential source of new technology and knowledge for host countries. The more technologies brought in the host country, the larger is the scope for technology and knowledge spillovers. Such effects may be significant, but they depend to a large extent on host countries' ability to accept and adopt available technologies and knowledge. If the technology gap between countries is too large, then the spillovers may not materialize.

Key words: Technology difusion, spillover, innovation, knowledge, productivity, competitiveness

JEL Classification: D83, F21, F23, F43, J24, O33 Prof. Joachim Becker, Ph.D. Prof. Rudy Weissenbacher, Ph.D. Wirtschaftsuniversität Wien, Austria

GROWTH MODELS, FDI AND CRISIS IN CENTRAL, EASTERN AND SOUTH EASTERN EUROPE

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In Central Eastern and South Eastern Europe, two basic growth models can be distinguished: an export-led and a finance led model. The first model was prevalent among the Visegrád countries, while the latter was dominant in the Baltic States and South Eastern Europe. Hungary and Romania shared characteristics of both though they were closer to the finance-led model. The latter growth model proved to be much more vulnerable to crisis. The paper investigates how Foreign Direct Investments (FDI) contributed to reducing or aggravating key crisis vulnerabilities. Natalia Kulikova, Ph.D. Director of the Center for East European Studies, Institute of Economics

Russian Academy of Sciences, Mosco, Russia Mikhail Lobanov, Ph.D., Researcher

Center for East European Studies, Institute of Economics


THE ROLE OF FDI IN THE ECONOMIC MODERNIZATION OF CENTRAL AND EASTERN EUROPEAN EU MEMBER STATES:

VIEW FROM RUSSIA

The growth and modernization of the economy of CEE EU members is principally based on large-scale foreign direct investment (FDI) inflow. These investments have influenced positively on economic development. They provided the acceleration of economic growth, improved economic structure and gave it a new competitive qualities, increased access to international markets, served as a resource for improving the balance of payments and helped to accept modern technology, knowledge and management.

However, the deep penetration of foreign capital has made the economy of CEE countries strongly dependent on external conditions and decisions of foreign investors, exposing it to serious risks. This reliance on modernization effect of FDI hasn’t provided an access to advanced technological position. In the future, lack of proper attention to the development of own sphere of research and development can preserve or even increase the technological gap and the difference in the overall level of development between new EU member states and the countries with innovative economies. Prof. Dražen Derado, Ph.D. University of Split, Faculty of Economics, Split, Croatia

DETERMINANTS OF FDI INFLOWS IN TRANSITION ECONOMIES

The reasons for analyzing FDI are many fold. As the main form of non-debt

creating source of financing, FDI brings knowledge, creates positive spill-over effects

and is less volatile than financial investment. The last proved to be an advantage during

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financial crises. With reference to the SEECs’ non-membership in the EU and

emergence of the new EU-member countries as desirable locations for FDI, together

with steadily growing cross-border activities of many MNEs and an increasing

competition in attracting FDI worldwide, the aim of the paper is to find out economic

and institutional determinants of FDI-inflow in transition countries. The purpose is to

give economic policy recommendations in order to increase inflows of foreign

investment in times of slow economic recovery following the financial market slump of

2007/’08. Based on an integrated approach to formulating FDI-theory, the paper

differentiates between horizontal and vertical FDI as well as different motives for

foreign investment. Econometric analysis which covered the period of 12 years has

revealed some characteristic of a gravity type model in which the realized level of

economic development and distance between two countries play significant role in

explaining driving forces behind FDI-flows. Economic openness and trade relations

with developed countries as well as formal relations with the EU proved to have strong

positive impact on the dependent variable, while institutional factors and cost advantage

realize weak influence on FDI in transition countries.

Key words: FDI, gravity analysis, institutional factors, EU, transition economies.

JEL Classification: F21, F23, F41, C40, L10. Assist. Prof. Ioana Vadasan, Ph.D.

Assist. Prof. Nicoleta Sirghi, Ph.D. West University of Timisoara

Faculty of Economics and Business Administration

Timisoara, Romania

THE LABOUR FORCE, AS THE ATTRACTIVE FACTOR FOR FOREIGN DIRECT INVESTMENT: THE CASE OF ROMANIA

During the last 20 years, Romania’s development was due, among other things, to the foreign direct investments. Multinational companies have been attracted by the Romanian qualified and cheap labor force.

The country’s integration in the European Union has increased its attractiveness, since it is now part of the single market.However, finding the necessary labor force has not always been easy. Romanians’ migration to Western countries, looking for better wages and better life conditions, has caused difficulties for foreign companies in finding the qualified labor force they needed.

In this article, the authors will present the factors that made Romania attractive for foreign direct investments, with a special focus on the labor force, as well as the things that still have to be improved, in order to keep our attractiveness. The authors will also present the effects of the present crisis upon the foreign direct investments and the labor force.

Key words: labour force, foreign direct investment, crisis ecomomic

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Tajana Barbić, M.Sc., Research Assistent Iva Čondić-Jurkić, M.Sc., Research Assistant Institute of Economics, Zagreb, Croatia

FOREIGN DIRECT INVESTMENT AND STOCK MARKETS DEVELOPMENT IN CEE COUNTRIES

The foreign direct investment (FDI) in CEE countries has grown rapidly in recent years. Relevant literature suggest that an increase of FDI flows was facilitated mainly by structural reforms undertaken by host country, including strengthening macroeconomic stability, privatization, capital account liberalization and tax incentives. Development of financial markets has also played a remarkable role in attracting FDI. However, the aim of this paper is to explore what effect have foreign direct investment had on stock markets of selected CEE countries, i.e. whether foreign investments have fostered further development and deepening of stock markets. Long- and short-run relationships between FDI inflow and stock market development are to be tested using Johansen cointegration method and Granger causality test, respectively.

Keywords: FDI, stock markets, cointegration, Granger causality

Žaklina Novičić, M.Sc., Research Associate Ivona Lañevac, M.Sc., Research Associate Institute of International Politics and Economics, Belgrade, Serbia

FOREIGN DIRECT INVESTMENT IN THE EU LAW AFTER THE LISBON TREATY

Under the Lisbon Treaty new exclusive competence on foreign direct investment has been conferred to the European institutions. This new competence is affecting on the conclusion of international agreements, the membership status to relevant international organisation and the contending party status in a dispute settlement mechanisms regarding foreign direct investment. In this paper is analysed the scope and meaning of the new competence, which means to say, first of all, something more about legal context before Lisbon directly or indirectly connected with foreign direct investment of the EU. In this sense, this paper is analysing a development of EU Treaty provisions, legal status of concluded bilateral investment agreements, as well as main features of international investment initiatives. After all, in the conclusion, the paper deals with the nature and the potential of the first concrete steps of the European institutions in development of the new exclusive competence for common international investment policy, in the context of the world economic crisis and a global competition in attracting and promoting direct investment.

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Assist. Prof. Srñan ðinñić, Ph.D. University of Kragujevac, Faculty of Economics, Kragujevac, Serbia

CORPORATE TAX REFORM IN EU AND GROWTH OF INVESTMENT ACTIVITIES

In this paper the author analyses the substantial corporation tax reforms in EU by the implementation of the „common consolidated corporate tax base” (CCCTB) with the aim of promoting the functions of the common market, expansion of the investment activity and affirmation of the global competitive superiority of the EU. In accordance with the set goal of research, the structure of the paper originally presents two complementary thematic units and they are as follows: (1) Tax design in EU (OECD). It summarises the current features of corporation tax within the authentic constitutive segments. (2) Tax reform in EU. It assesses the course of corporation tax reform in EU during the first decade of the new century. Although there are numerous and still “open” problems the paper gives a clear and unambiguous answer to the starting question – if EU resident corporations have integrated their business at the European Union level, and they have, then they should be charged taxes in accordance with the profits gained in the European Union at the EU level. The introduction of CCCTB is a key point of the whole process of harmonisation of the gain (profit) taxation system. Prof. Slobodan Cvetanović, Ph.D. University of Niš, Faculty of Economics, Niš, Serbia Danijela Despotović, Ph.D. University of Kragujevac, Faculty of Economics, Kragujevac, Serbia

Dušan Cvetanović University Alfa, Belgrade, Serbia

DOMESTIC SAVINGS AND FOREIGN DIRECT INVESTMENT IN THE NEW MODEL OF ECONOMIC GROWTH COUNTRIES

OF THE WESTERN BALKANS

Research the key mechanisms for the mobilization and allocation of capital at the level of the national economy, and especially the role of domestic and foreign savings as a source of financing for economic development on the example of the six Western Balkan countries is followed by a number of open issues. Many doubt further complicated by the global economic crisis egzistirajuća character who, among other things, has done so far prevazañenim pattern of economic growth in these countries. Far, however, more important fact that is still in any of these countries there is designed a new model of economic growth and development of funding strategies conductivity for the period after the end of the crisis. Furthermore, it seems indisputable conclusion that the new model of economic growth must be radically different from dominating the time that preceded the outbreak of the financial, and then the global economic crisis. In short, the new model of growth of the Western Balkans imperative must involve increasing the gross domestic product based on productivity growth in the real sector of economy and politics of funding

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long-term development that is predominantly based on domestic savings. This attitude, however, does not call into question the importance of external sources of funding for economic development of the Western Balkan countries in which foreign direct investments have a special place in the politics of their technological modernization.

Key words: economic growth, domestic savings, foreign direct investment, a new model of growth, the Western Balkans

Prof. Irena Kikerkova, Ph. D. Ss. Cyril and Methodius University, Faculty of Economics, Skopje, Macedonia

FOREIGN DIRECT INVESTMENT OUTLOOK FOR THE REPUBLIC OF MACEDONIA

The paper is dealing with the structure of the attracted FDI, the effects they created within the economy and identification of the major causes for the poor results in this area within the Republic of Macedonia. During the past two decades numerous reforms were implemented. Though, economic growth and development did not happen, and the unamployment rate is over 32%. The participation of investment in creation of GDP was rather law and could not provide significant economic development.

Until 2001 about 70% of the FDI invested in Macedonia were effectuated in the manufacturing industries. From 2003, 50% of the invested FDI are realized within services sector and manufacturing gained 1/3 of the invested FDI in the economy. About 90% of total FDI in the country have European origin. Total stock of FDI was about 3 billions euros for a period of 20 last years.

The main causes for the poor results were: constant changes in the system, lack of the national development strategy, too many incentives offered to foreign investors, poor transport infrastructure, war conflicts, corruption etc.

Key words: reforms, FDI, incentives, development

Dražen Koški, Ph.D. University Josip Juraj Strossmayer of Osijek, Faculty of Economics, Osijek, Croatia

FINANCIAL DICHOTOMY OF FOREIGN DIRECT INVESTMENT: FOREIGN EXCHANGE INFLOW AND

FOREIGN EXCHANGE OTFLOW

Abstracting from advantages that foreign direct investments could have on financial sector of host country, in this article are shown results of research from which it is apparent that, under certain circumstances, foreign direct investments could result by significant financial disadvantages.

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Using economic model it is shown that, at the beginning, foreign direct investments mean foreign exchange inflow, and later, if they are profitable, foreign exchange outflow for host country. The more profitable they are, the more foreign exchange outflow will be. If the host country is small, open and highly indebted country, which from any reason, have not sufficient foreign exchange inflows, growing foreign exchange outflow could have difficult consequences for its international liquidity. It is possible to solve that problem by attracting export-oriented foreign direct investments.

Quantitative analysis is conducted on the basis of data for the Republic of Croatia for period 2005.-2009. In this country, foreign direct investments are not generally export-oriented, so if inflows of new investments decrease in the future, foreign exchange outflows could additionally increase country's high international indebtedness.

Key words: foreign direct investments, foreign exchange inflow, foreign exchange outflow, income account, international liquidity

Prof. Jasmina Osmanković, Ph.D. University of Sarajevo, Faculty of Economics, Sarajevo, Bosnia & Herzegovina

Jasmin Hošo, Ph.D. Tondach, Sarajevo, Bosnia & Herzegovina

DEVELOPMENT POTENTIALS OF FOREIGN DIRECT INVESTMENTS: AN EXPERIENCE OF COMPANY TONDACH

The paper tests a hypothesis that transnational companies as bearers of foreign direct investments exert a positive impact on the development of host countries. It is tested on the case of company Tondach in four countries that were created in the 1990s by the dissolution of the former Yugoslavia. The research is focused on company Tondach and its activities in the Republic of Croatia, Republic of Serbia, Macedonia, and Bosnia and Herzegovina. The research includes the period from 1996, when company Tondach entered these markets, up to 2008. It especially attempts to give an answer concerning the capital the company invested in those countries, the improvement of balance of payments, exports, tax incomes, and jobs.

The paper is the result of primary and secondary research, the use of delphy and consultation methods as well as the result of a statistical analysis of the time series.

The results of the research that has been carried out can be most briefly summarised in the following way: Company Torndach directly generated over a thousand of jobs in the four countries, invested more than 150 million euros, exported almost 50 million euros, made an income of over 65 million euros in 2008. The company modernised and reconstructed the facilities it had bought, built new and transferred modern technologies, fulfilled all budget obligations, and acted as a socially responsible company (scholarships, sponsorships). All four countries that have been analysed recorded a rise in GDP and rise in GDP per capita in the period since the company entered their market up to 2008 (Croatia in 1996, Bosnia and Herzegovina in 1997, Macedonia in 2000 and Serbia in 2003). The research should be continued by including some other aspects of the cause-effect relationship between the transnational company and host country.

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Key words: transnational companies, Tondach, foreign direct investments, Bosnia and Herzegovina, Croatia, Macedonia, and Serbia. Assist. Prof. Vlatka Bilas, Ph.D. Sanja Franc, univ.spec.oec. Danijela Ćenan, M.Sc.

University of Zagreb, Faculty of Economics, Zagreb, Croatia

FOREIGN DIRECT INVESTMENT INCENTIVES IN CROATIA AND SELECTED COUNTRIES

According to the global trends the competition for attracting FDI is especially strong among developing countries for which those kinds of investments represent an important source of foreign capital and potential positive spillovers on the economy. Many countries offer different incentives in order to attract foreign investors and divert them from investing in competing countries. This paper analyzes the importance of designing FDI incentive policies and measures. In the paper an overview of the existing literature on FDI determinants and incentives is given along with the analysis of FDI flows in the six selected countries, among which three are the EU candidates, namely Croatia, Macedonia and Turkey, and the other three countries, Serbia, Montenegro and Bosnia and Herzegovina are potential EU candidates. Programs and measures of attracting FDI in selected countries are analyzed and compared in order to notice certain similarities and differences between them, as well as to determine the level of competiveness and perspectives for attracting foreign investors in the mentioned economies. Prof. Pero Petrović, Ph.D., Professorial Fellow Institute of International Politics and Economics, Belgrade, Serbia

GENERAL CHARACTERISTICS OF FOREIGN DIRECT INVESTMENTS IN SERBIA

The international movement of capital takes place in three main forms, namely: the international movement credit capital, portfolio investment and foreign direct investment. Direct foreign investments (greenfield investments) are now considered as most desirable form of international capital. They are such kind of investment capital in the company which acquired ownership control over the company. Direct investment capital can be done in an existing company (modernization, expansion, etc..) abroad or to build entirely new facilities ("greenfield investment"). In both cases, the owner of capital decide where to invest capital, how to organize production, takes care of the conditions of loans, the financial results of operations and the like., But also bear the risk of doing business. Thus, foreign direct investments carry the highest risk business, but are most earnings or profits. Foreign direct investment (FDI) play a key role in economic development. When it comes to the exporting country, exports of capital allows increased capacity utilization, expanding

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markets and new technological development, and essentially boils down to increase profits, especially in medium and long term. When it comes to importing countries, imports of capital provides an additional accumulation, transfer new technologies and know-how without buying a license, higher exports, the ability to finance new investment, which contributes to increase employment, incomes, labor productivity, increase revenue and other effects. The paper analyzes main characteristics of the inflow of FDI to Serbia.

Key words: foreign direct investment, investment, Serbia, Greenfield investment, movement of capital

Goran Nikolić, Ph.D., Research Fellow Institute of European Studies, Belgrade, Serbia

SIGNIFICANCE OF FDI ATTRACTION FOR EXPORT AND COMPETITIVENESS GROWTH AND BALANCE OF PAYMENT

SUSTAINABILITY

The influx of FDI is particularly important for integrating local economies into the global economy through the impact on the growth of foreign trade and relaxation of balance of payments imbalances. Numerous authors point out the strong influence of FDI on the development of new EU members trade and emphasize the big role of government policies and political stability. It turned out that the FDI was crucial for the transfer of new technologies, and that FDI led to productivity growth and spill-over effects on local clusters. Exports had a significant role in the ''catching up'' process (to EU).

Amount of FDI in Serbia in 2010. will depends on the sale of ’’Telekom’’, implementation plans for the modernization of NIS plants, reconstruction of facilities "Fiat", the arrival of Ikea. It is encouraging that the sectoral structure of the FDI inlflow in these critical years significantly improved: manufacturing industry has increased the share in total FDI from 12.9% in 2007. to 31.8% in the first quarter of this year.

Keywords: FDI, inflows, exports, balance of payments, competitiveness, Serbia

Prof. Hasiba Hrustić, Ph.D., Professorial Fellow Institute of International Politics and Economics, Belgrade, Serbia

THE FOREIGN DIRECT INVESTMENT AND TAX ENVIRONMENT IN SERBIA

In the last years Serbia has achieved significant amounts of foreign direct investment (FDI). This paper analyses the importance of tax policies on foreign direct investment. In particular, how corporate and personal income taxes affect on the cost of capital and return to investment. The aim of this study is to determine a relationship between tax system and FDI inflow in Serbia.

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A considerable dimension in this research is the choice of the best indicators for measuring the tax burden on FDI are: the corporate tax rate, income tax base, tax incentives, and bilateral tax arrangements concerning taxation of royalties, interests, withholding taxes on repatriated profits, including exemption or credit regimes for foreign source income.

Key words: foreign direct investment, corporate income tax, personal income tax, tax incentives, bilateral tax arrangements.

Prof. Gordana Milovanović, Ph.D. University of Kragujevac, Faculty of Economics, Kragujevac, Serbia

POSSIBLE IMPACT OF EU STRATEGY FOR THE DANUBE REGION ON FUTURE FDI IN THE WESTERN BALKAN

REGION

The developing countries have been able to attract a substantial amount of foreign capital during the last two decades by adopting liberal investment and trade policies. Foreign banks play a stabilizing role in Sought-East Europe, but their large scale presence also raises potential concerns. The economic and financial crisis reduced foreign investitor's confidence in the strenght of local economics in the Balkan, and investment plans were scaled down or postponed. Transition economies had been able to attract large and growing capital inflows thanks to privatizations at attractive prices and hight interest rates. In South East Europe, the winding-up of privatization-linked projects made FDI inflows, wich declined sensitive to crisis. Emerging Balkan economies have been hit hardest, reflecting some countries' large domestic and external imbalances. Prospects for inward FDI remain positive in the medium term

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