Macroeconomic Effects of Serbia’s Integration in the EU and the Euro Area

Abstract

In 2009, Serbia officially applied for European Union (EU) membership. In 2014, membership negotiations began. After joining the EU, Serbia will have to adopt the euro as legal tender as soon as it fulfils the relevant Maastricht criteria. So far, the quantitative consequences of such changes in the institutional framework on the macroeconomy and the major objective variables of Serbia (or another West Balkan country) have not been analyzed. In this paper, we examine likely macroeconomic effects from Serbia’s membership in the EU and the Euro Area by means of simulations with a macroeconometric model of the Serbian economy. We show that EU accession and the introduction of the euro bring about higher real gross domestic product, more employment, and more sustainable public finances. The benefits of joining the Euro Area are mainly due to increases in productivity.