Marko Malović

Determinants of Currency Substitution in Southeast European Countries

Abstract Currency substitution is widespread in less developed countries. Since it increases financial vulnerability and limits the effectiveness of monetary policy, it is often in the focus of scientists and experts. In this paper, we analyze the importance of euroization determinants in Serbia and neighboring countries - Albania, Bosnia and Herzegovina, FYR Macedonia, Romania and Croatia for the period 2003-2014. We examine the impact of domestic inflation, nominal exchange rate of the domestic currency against the euro, interest rate spread on domestic and foreign currency, foreign currency inflow in the form of foreign direct investments and exports, as well as the euroization of banks’financial resources on the degree of loan euroization. The results obtained by multiple regression panel methods confirm the statistical significance and assumed direction of the influence of all analyzed variables except inflation and current account balance.

Misunderstanding of FDI in the Western Balkans: Cart before the Horse and Wheels without Suspension

ABSTRACT One of the key characteristics of the world economy in the last few decades has been the rise of foreign direct investments (FDI), which represent the major and most desirable form of capital flows from developed to developing and transition countries. The aim of this paper is to investigate specificities of FDI inflow to six small open transition economies of the western Balkans over the 2004–2014 period. Formal econometric tests carried out in the paper imply that—contrary to widespread ideology—FDI inflows exhibit at best no impact whatsoever or indeed a statistically significant negative impact on both GDP and GNP (cumulative) growth rates in the western Balkans. After exploring stylized facts and contrasting them with theoretical predictions, the article goes on to debunk several misconceptions in regard to motives, modes of operation and economic effects of FDI confronted with inconsistent, partial or outright detrimental government policies. The authors therefore call for a considerably different attitude towards FDI and the growth-generating concept in the Balkans.