Foreign direct investment (FDI) is widely recognized for its positive impacts on economic growth and transformation. It is also considered an important channel for the development and accumulation of human capital and the diffusion of new ideas and business skills across national borders. Foreign investment inflows can positively influence employment and may represent an important source of technological advancement in the host country. Global trends show that competition for attracting FDI is especially strong among developing countries, as it represents an important source of foreign capital and can have positive spillover effects on the host economy. This policy paper is organized as following: Section 2 provides a brief theoretical discussion of the main factors that affect investors’ decisions and potential Foreign Direct Investments (FDI) effects on the host-country, followed by a discussion of the importance of FDI for Kosovo and the current legislative framework. Section 3 highlights Kosovo’s FDI profile in general and by sector, as well as its position compared to other SEE countries. Section 4 discusses Kosovo’s potential for attracting investments and its investment climate and scrutinizes the key deterrents for FDI in Kosovo. Section 5 examines the main types of investment incentives and compares Kosovo’s incentive schemes with SEE countries. Section 6 considers the perceptions of EU and EFTA foreign investors operating in Kosovo. The last section offers a set of policy recommendations and solutions that would further enhance Kosovo’s investment climate and its overall performance with regard to attracting FDI. To access the report, please click here.