20.500.12556/ReVIS-13310 Does Informality Deter Investment? An Empirical Analysis of FDI and the Informal Economy in EU and Candidate Countries This study examines the relationship between the size of the informal economy and foreign direct investment (FDI) flows in EU member states and EU candidate countries in the Western Balkans, as part of the wider Mediterranean region. The analysis' central hypothesis is that informality deters FDI, owing to factors ranging from institutional quality to unfair competition. Using data for the period 1996–2020 and employing Ordinary Least Squares (OLS) and Fixed Effects (FE) estimations, our results indicate that a larger informal economy significantly reduces FDI inflows and outflows only in non-EU countries, with no statistically significant relationship found for EU member states. This finding persists even after controlling for institutional quality, suggesting that the documented impact of the informal economy on FDI is not mainly through institutional weakness but rather through other underlying market distortions that prevail in highly informal markets. These insights underline the need for future research to examine more closely how informality affects market conditions and investment behaviour. informal economy foreign direct investment EU membership EU candidate countries true true false Angleški jezik Ni določen Delo ni kategorizirano 2026-03-14 09:12:03 2026-06-09 09:03:10 2026-06-10 03:15:03 0000-00-00 00:00:00 2025 0 0 237-256 no. 2 Vol. 18 2025 0000-00-00 Zaloznikova NiDoloceno NiDoloceno 0000-00-00 0000-00-00 2025-08-31 1855-3362 2232-6022 10.70908/2232-6022/18.237-256 18.237-256.pdf 18.237-256.pdf 1 D99DE9805CAFF52E928D680B0365BD35 26193cfcf82c120bf1fa0abae4fb37543fe544fa843eaa666a19a419106cb00a 82ed3c02-1f7d-11f1-acf8-001a4af901a5 https://revis.openscience.si/Dokument.php?lang=slv&id=15835 https://ijems.emuni.si/index.php/home/article/download/334/72 1 9c21d3c1-1f7d-11f1-acf8-001a4af901a5 https://revis.openscience.si/Dokument.php?lang=slv&id=15836 Euro-Mediterranean University 0 0 0