This paper considers the role of foreign direct investment (FDI) in the
transformation and development of post-socialist transition economies, with
some particular review of the example of Republic of Serbia. Given the
post-socialist countries had a significant deficiency of inner capacities,
FDI was considered as the most important means of providing financial
capital, technologies, organizational and managerial practices and access to
foreign capital markets. Such expectations were supported by the theories of
positive contribution of FDI to the economic transformation of transition
countries. Over the past decade, transition economies have been the
fastest-growing host for FDI, but there are not expected results. FDI has not
contributed much to the industrial improvement or to the promotion of
competitiveness and exports, and the new empirical evidence even points to
negative effect of FDI penetration on domestic market. Considering the great
disparity between potential and realized effects of FDI on the economic
development of these economies, this paper explores the main sources of
failure. The first is the type of FDI, with predominating acquisitions and
privatizations along with less sophisticated technology transfers; the second
refers to the sectoral distribution, primarily in non-tradable services and
goods, which means that FDI contributes only to the market spread of the
investors. These features of FDI created the mechanisms of disarticulation of
host economies, with a decrease in economic growth as a result.
Effects of foreign direct investment on the restructuring of the see economies
