This paper quantifies the effect of intercompany lending on the current account balances in the economies that previously made up the Socialist Federative Republic of Yugoslavia. This kind of transaction is a controversial part of the foreign direct investments, often criticised for its indebting nature and its involvement in tax evasion strategies. However, the data shows that in the post-crisis period it was the driving force of foreign capital inflow and investments in the region. For this study, a novel model averaging approach was employed, as it allows cross-country and country-specific analysis, and provides a sound basis for future policymaking. Additionally, as a way to overcome the limited dana availability problem, and provide an additional robustness check, panel regression fixed effects for 17 CESEE economies was done. The results of both models are significant and indicate the stabilising effect of the observed transaction as it provided a steady inflow of funds.
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