Background: Small open economies must continuously align external opportunities (foreign capital and export markets) with internal resource capabilities (financial sector maturity) to secure long-term growth. Understanding the interaction among these factors is essential for designing effective development and investment strategies. Purpose: The paper sets out to uncover the real drivers of economic growth in Serbia and, above all, to offer policymakers and business leaders clear, evidence-based recommendations on the most promising growth strategy and on how to make the country systematically more attractive to investors. Study design/methodology/approach: The study employs annual time-series data for Serbia. The analysis applies the Autoregressive Distributed Lag (ARDL) bounds testing approach to examine long-run and short-run dynamics, complemented by a Vector Error Correction Model (VECM) to assess Granger causality among the variables. Findings/conclusions: The findings reveal stable long-run relationships, with exports driving economic growth in the long run and foreign direct investment exerting positive effects only in the short run. Causality analysis identifies short-run causality from foreign direct investment to economic growth and financial development, as well as long-run causal interdependence among economic growth, foreign direct investment, and financial development. Limitations/future research: The study is limited by the use of aggregate data and a single-country focus. Future research could include additional variables or extend the analysis to other transition and Western Balkan economies.
Parežanin et al. (2026) studied this question.