Economic development of the Western Balkans and European Union investments

Abstract

Long-run economic growth represents a precondition for the development of the Western Balkans countries. Continuous investments are required to achieve high rates of economic growth, while investments sources are national savings and foreign investments. The national savings level in the Western Balkans (W.B.) is not sufficient to finance radical changes, so external sources, in particular foreign direct investment (F.D.I.), are necessary for the development, as well as the official development assistance (O.D.A.). In view of the European intentions for the Western Balkans Region and the level of economic relations with the European Union, this paper seeks to explore the European Union (E.U.) investments and W.B. development. Results of the panel analysis and V.A.R. model show a statistically significant relationship between G.D.P. per capita and the length of the road network and E.U. investments. This confirms the significance of these development variables for the inflow of investment from the E.U. Panel analysis, explanatory variables of trade openness and signing of the Stabilisation and Association Agreement with the E.U. did not prove to be significant for E.U. investments inflow. A statistically significant relationship does not exist between the unit labour costs and investments from the E.U. when applying a causality test.