The impact of state regulations on foreign direct investment flows in the Western Balkans

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Abstract

This study examines the state-level factors influencing the absorption of foreign direct investment (FDI) and the decision-making of multinational enterprises (MNEs) to invest in foreign markets, with a particular focus on regulatory determinants along the firm life cycle. Building on recent evidence that institutional and regulatory quality significantly shape FDI inflows in developing economies (Krasniqi & Fetai, 2024; Topçu, 2023), the study uses data from the World Bank for six Western Balkan countries over the period 1998–2022. Using a panel data regression model, it identifies key institutional and economic factors affecting FDI inflows. The empirical results show that countries with lower tax rates on income and profits, stronger control of corruption, and simpler business entry procedures tend to attract higher levels of foreign investment. Furthermore, higher gross domestic product (GDP) per capita and a favorable business environment positively influence FDI decisions. These findings highlight the importance of transparent, efficient, and predictable regulatory frameworks in fostering investment attractiveness. The study offers important policy implications for governments in the region, suggesting that reforms aimed at improving institutional quality and reducing administrative barriers can significantly enhance FDI inflows. Future research could extend this analysis by incorporating qualitative dimensions such as political stability, infrastructure development, and legal enforcement to provide a more comprehensive understanding of the factors driving FDI in emerging economies.

Keywords: Foreign Direct Investments (FDI), Life Cycle, Business Climate, Multinational Companies

Authors’ individual contribution: Conceptualization — S.U.; Methodology — B.D.; Formal Analysis — S.U.; Investigation — B.D. and S.U.; Resources — E.B. and G.M.; Data Curation — B.D. and S.U.; Writing — Original Draft — E.B. and G.M.; Writing — Review & Editing — E.B. and G.M.; Visualization — E.B.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: F6, F15, F23

Received: 22.06.2025
Revised: 20.10.2025; 26.10.2025; 27.01.2026
Accepted: 02.02.2026
Published online: 05.02.2026

How to cite this paper: Dragusha, B., Bejleri, E., Ulqinaku, S., & Memaj, G. (2026). The impact of state regulations on foreign direct investment flows in the Western Balkans. Journal of Governance and Regulation, 15(1), 251–258. https://doi.org/10.22495/jgrv15i1art23