The political economy of economic liberalisation and competitiveness in bosnia and herzegovina

Abstract

This paper analyses the interaction of domestic political actors and the international community in Bosnia and Herzegovina (BiH) in implementing economic reforms based on trade liberalization, financial liberalization and privatization, and the impact of these changes on the competitiveness and sustainable growth of the BiH economy. It is hypothesized that the key barrier to sustainable economic growth in BiH, as a small open post-conflict economy, is the wrong-headed political economy of transition which gave effective management of economic policy to the sub-national entities, disrupting business clusters developed in the prewar period and undermining the country's productivity, economic efficiency and therefore its competitiveness. The analysis suggests that sustainable economic strategy for BiH and its entities should be based on export-oriented investment and effective coordination mechanisms so as to attract FDI and stimulate domestic investors with significant export potential. Because of the extremely important role of neighbouring countries Croatia and Serbia for the political and economic future of BiH, and having in mind that all three countries have low competitiveness rankings, a redefinition of investment strategies and economic cooperation between companies in the three countries would be a very welcome move forward. Better cooperation supported by the EU, based on reciprocal foreign direct investment in the manufacturing with an export orientation towards other regions in the world, would be a win-win strategy.