Harvard European Law Working Paper no. 03/2006

Author: Emi Velkova

Title: Integration of South-East Europe in the EU: Corruption, Foreign Direct Investment and Development

Abstract: The hope that the creation of market economies would attract substantial foreign direct investment (FDI) in South-East Europe and that FDI would promote growth and development have not materialized. We can fault high corruption and a weak property rights system. Corruption reduces FDI inflows and attracts lower quality of investment. Judicial corruption raises transaction costs thus preventing FDI from promoting growth. Protection of foreign investors' property rights in the region depends on the independence and strength of the judiciary. This article discusses the effect of FDI on growth in South-East Europe.

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