Expansion of direct investment and resilience of Serbian labour market: A regional and sectoral perspective

Abstract

In recent years, Serbia has established itself as a leading destination for FDI thanks to its generous policy aimed at attracting direct investment. In this paper we look at the labour market effects of the policy of incentivised direct investment, first from a sectoral and regional perspective, and then by taking a holistic view at its impact on the overall labour market and economic development. We find that this policy has contributed to overall sectoral rebalancing of the labour market by increasing manufacturing jobs. It has also contributed to regional labour market rebalancing, most notably in improving the quality of employment in less developed regions and in stabilizing the shares of regional wage funds. Still, labour market, educational and infrastructure cleavages between regions remain very large. The transformational potential of Serbian labour market is far from being fully exploited, and Serbia still needs to sustain high level of investment in manufacturing jobs while at the same time supporting the gradual shift toward high-technology investment.