Role of Enhancing the Innovation Profile of Domestic Enterprises by Foreign Direct Investment

Foreign direct investment (FDI) stands out as a crucial element impacting the economic progress of a nation. Within the Western Balkans region, FDI plays a pivotal role in fostering economic advancement, expansion, and competitiveness. Nevertheless, the effects of innovation on the overall inflow of Foreign Direct Investment remain unexplored, particularly in the Western Balkans. This paper aims to examine the influence exerted by the innovation of local enterprises and other contextual variables on the expansion of Foreign Direct Investment in the Western Balkans spanning from 2019 to 2023. The study adopts a mixed approach through which it aims to ascertain the influence of the main factor (innovation) on the growth of FDI through the analysis of panel data. The study's results revealed two significant findings: First, a positive direct relationship exists between the progression of innovation within enterprises and the overall FDI influx in the Western Balkans. Second, factors related to structure and context, such as company size, workforce size, and establishment year, do not exhibit a substantial impact on the enhancement of innovation and FDI streams for local enterprises. Consequently, the outcomes underline the necessity for further investigation to assess the implications of these trends on enterprises (size, workforce, and establishment longevity) and to empower innovation opportunities and capital attractiveness for domestic enterprises through financial diplomacy.