Economic Growth in the Western Balkans: A Panel Analysis

Abstract This paper investigates how typical macroeconomic indicators affect the economic growth of Western Balkans countries. A static panel empirical investigation for the period 2010 to 2019 has been conducted using GDP growth rate as the dependent variable, while independent variables in focus include foreign direct investments, remittances, unemployment rate, population growth rate, and control of corruption. The most interesting finding is that a rising share of remittances positively affects economic growth. This might indicate that even when remittances are used for non-investment purposes, they might increase domestic production of consumption and intermediate goods. There is also evidence of a non-linear relationship between FDI and economic growth, which may be a consequence of undeveloped capacities to use the positive side of FDI. To foster economic growth policy-makers should focus on reforms that target sectors that show sharp declines in FDI and remittances inflows, including also a need for better control of corruption in the region.