The aim of this chapter is to examine the impact of investment in research and development on economic growth, as well as the nature of the impact of trade openness and foreign direct investment on extended Balkan Silk Road economies. The authors used the general econometric specification of the regression panel model and for the period from 2002 to 2018. The results showed that expenditures on research and development and trade openness have a significant positive effect on the gross domestic product of the countries with lower GDP per capita, while foreign direct investment in these countries has a neutral and nonsignificant impact on gross domestic product. For the countries with higher GDP per capita, expenditures on research and development have a marginally negative effect on the gross domestic product. Trade openness is significantly positive, while foreign direct investments have a significant but neutral effect on the gross domestic product. The main limitations of the research are the use of data on total R&D investment and foreign trade relations instead of sectoral.
TopIntroduction
In the past ten years, China has become one of the major financiers of infrastructure projects in the transport and energy sectors of the Balkan region (Holzner and Schwarzhappel, 2018). As one of the fastest-growing economies globally, China wants to become an economic superpower. In order to achieve its goal, one of the strategies for that goal is to establish the cheapest transport connection from the Far East to the European market. This connection is named The Balkan Silk Road. It is the transport route and logistics corridor that China has begun to establish in the Balkan region as part of the Belt and Road Initiative (BRI) (Bastian, 2017). The route begins in the Greek port of Piraeus, passes through Skopje and Belgrade, and broadens to Hungary. Besides this route, the Belt and Road initiative includes other Balkan countries, i.e. Albania, Montenegro and Bosnia and Herzegovina. BRI envisages large investments into roads, railways, ports, bridges, thermal power plants and supporting infrastructure and operating systems. Through these projects, China aims to improve transport and energy infrastructure in the Balkan region by supporting its global trade in different manufacturing and services sectors (Siddiqui, 2019).
These investments will diversify sources of access to capital in the Balkan region and have a positive impact on the acceleration of economic activity through GDP growth (Lakshmanan, 2011, Erić et. al, 2021) and increase productivity by reducing transport costs within and across observed countries (Bastian, 2017). Taking part in the new Silk Road represents a great development opportunity for the Balkan region to be actively involved in international trade, technological and financial flows. Performing the analysis, the authors want to investigate the effects of investments on the observed countries’ economic activity in the recent period. The obtained results will be used to assess the expected future effects of the BRI on the Balkan Silk Road countries.
In accordance with the objective of the research, two hypotheses will be tested:
H1: Investment in research and development has a significant positive impact on the country’s gross domestic product
H2: Foreign trade relations, measured by trade openness and foreign direct investment, have a significant but indirect impact on economic growth
In the analysis, the authors used the general econometric specification of the regression panel model. The sample includes 7 countries of the Balkan Peninsula (Serbia, North Macedonia, Bosnia and Herzegovina, Croatia, Slovenia, Bulgaria, and Greece) and Hungary, which is part of the extended Balkan Silk Road. The time interval of the data is 17 years and covers the period from 2002 to 2018., a panel set of data includes 136 observations.
This chapter is organized as follows. After the introduction, Section 2 brings a theoretical basis and literature review related to the subject of research. Section 3 presents the BRI data facts, as well as investments trend and worth of construction total and by sector in observed the Balkan Silk Road countries. Afterward, in section 4 the research methodology is presented. Section 5, the results of the research were discussed. Finally, section 6 presents the chapter's conclusions.
TopLiterature Review
Investments in the modern economy take over the function of a major development factor and, along with trade, become a key component of growth and development. Analysis of the effects that investments have on the economy is a very complex assignment. The rich literature on economic growth does not primarily deal with the role of investment, but certain findings and conclusions from this literature are very important when we consider investment as a driver of economic growth. For most countries, the contribution of investment to economic activity is significant. It represents a combination of positive effects, starting with the boosting of economic activity in the country, employment growth, and most importantly, the transfer and spillover of knowledge and technology (Borenzstein et al., 1998, Mehic et al., 2013, Pegkas, 2015, Dinh et al. 2019, Đukić et al., 2016).