Main factors behind the substantial increase of FDI in Bulgaria : 2003-2007

Abstract

Since 2003 FDI inflows to Bulgaria have been growing steadily. This paper addresses the question which the main factors determining this significant increase are. The analysis is based on a large amount of macroeconomic data as well as the record of the process of integration of Bulgaria into the European Union (EU) and reforms in the country. Results show that privatization was an important determinant of FDI in the beginning of the examined period (until 2005), but after that other cross-border mergers and acquisitions and especially greenfield investment gained more importance relative to privatization. In addition, low labour costs and removed tariff and non-tariff barriers to trade (as prerequisites for efficiencyseeking FDI) and reforms related to the accession of the country into the EU (which ultimately led to improvement of the business environment) also proved to be important determinants of FDI inflows to Bulgaria.