Trade and Industrial Development in Kosovo

Abstract

In the last 15 years, Kosovo has faced serious economic challenges, the most pressing of which has been the persistent and huge negative trade balance. Many believed that trade liberalisation would remedy the situation and trade with neighbouring countries was liberalised, followed by the liberalisation of trade with the EU. However, trade liberalisation has not produced the expected results, as it did not enhance the competitiveness of domestic industries. It did, however, exacerbate the consumption bias of an already heavily consumption-dependent country. The benefits from trade liberalisation were limited due to supply-side constraints, and in the future greater emphasis should be placed on domestic measures to enhance production capacities. The recent literature argues that policymakers should consider industrial policy to boost the country’s productive capacities. The discussion of the privatisation process in the context of industrial growth in Kosovo is still highly relevant, as over half of the assets of the former socially owned enterprises have not yet been sold or liquidated. The transformation of some of these remaining assets could contribute to increasing the production capacity and contribute to a wider economic development. This would extend the production base, which is already being gradually expanded by new private initiatives. Once a critical mass of private enterprises has been achieved, the effects of trade liberalisation are likely to become more visible.