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Serbia's strong economic growth from the pre-crisis period, interrupted when the global financial crisis was transmitted to the country, is expected to be slower in the coming years than in the precrisis period, as the growth model based on high domestic consumption and foreign savings' financing is no longer possible. Creation of a favourable business environment is one of the key preconditions for attracting foreign and domestic investment, necessary for structural changes, economic recovery, and sustainable growth of Serbian economy. According to the several key international databases and surveys, Serbian business environment has a number of weaknesses. Its quality is lagging in a number of indicators not only behind the EU-10 region, but also behind the Western Balkans. The most prominent weaknesses of Serbian business environment, which inhibit the foreign and domestic in Serbia are: slow progress in structural and institutional reforms, poor implementation of laws, inefficient government bureaucracy, high level of corruption, and high administrative barriers in the area of construction permits, paying taxes and closing a business. The papaer concludes that the best way for Serbia to improve the quality of its business environment, is to speed up the reform process and to strengthen the structural and institutional reforms. Further progress with the EU accession process is also of great importance for the improvement of the business environment, improving the attractiveness of the country for domestic and foreign investment.

Based on standard classification of competitive advantages of a country as investment location and complex international assessments of countries' competitiveness, the paper identifies competitive advantages and disadvantages of five Western Balkan countries (WB5), as FDI location. WB5 as a region lags behind EU27 and EU10 average in almost all relevant indicators of locational competitiveness. The identified competitive advantages of WB5 as a location for FDI are the following: stable macroeconomic environment, fast economic growth, geographical proximity to major EU markets, stable and relatively well developed financial system, relatively low cost and qualified labor, and EU Stabilization and Association Agreement with EU, CEFTA and other bilateral trade agreements. The most prominent weaknesses inhibiting more FDI inflows in WB5 are: small domestic market with low per capita income, relatively high country risk, slow progress in structural and institutional reforms, underdeveloped infrastructure, inefficient government bureaucracy and high administrative barriers. The papaer concludes that the main policy message arising from theoretical findings and empirical evidence suggest that the best way for WB5 to attract more FDI in the future is to strengthen the structural reforms and to speed up their EU approximation processes. Any specific FDI policies are only of a secondary importance.