The objective of this paper is to assess the main determinants that affect economic growth, and also the policies that may affect it, in the Western Balkan over the period 1994 to 2015. For this purpose we employ different techniques: OLS with robust error, fixed and random effects model, and Hausman-Taylor model with instrumental variables (IV).  The study shows the evidence of conditional convergence, indicating to the need for an upward move in the steady state level of the Western Balkan region. The results show that foreign direct investments, gross savings and domestic credit to private sector have a positive effect on per capita growth. On the other hand, initial level of per capita growth, corruption, unemployment, and general government final consumption, have a negative relationships with per capita growth. Moreover, the paper shows puzzling results of the schooling which is not significant factor for growth in the Western Balkans. The study also highlights the relevance of attracting more foreign direct investments and reduction in corruption. 


economic growth, binding constraints, Western Balkan, panel methods

JEL Codes

E60; O11

Full Text:



Baltagi, B. H., 2013. Econometrics analysis of panel data. England: John Wiley & Sons Ltd.

Barro, R., and Sala-i-Martin, X., 1992. Public finance in models of economic growth. The Review of Economic Studies, 59(4), 645-661. doi: DOI:10.2307/2297991

Fetai, B., 2015. Financial Integration and Financial Development: Does Financial Integration Metter? European Research Studies, XVIII(2), 97-106.

Gabrisch, H., 2015. Financial Constraints on Growth: Comparing the Balkans to Other Transition Economies. Eastern European Economics, 53(4), 309-327. doi:

Greene, W. H., 2008. Econometric analysis (6th ed.). New Jersey: Pearson Education, Inc.

Hausman, J. A., 1978. Specification Tests in Econometrics. Econometrica, 46(6), 1251-1271. doi:

Hausman, J. A., and Taylor, W. E., 1981. Panel Data and Unobservable Individual Effects. Econometrica, 49(6), 1377-1398. doi:

Hausmann, R., Rodrik, D., and Velasco, A., 2006. Getting the Diagnosis Right. Finance and Development, 43(1).

Levine, R., 1997. Financial Development and Economic Growth: Views and Agenda. Journal of Economic Literature, 35(2), 688-726.

Lewis, A. W., 1954. Economic Development with Unlimited Supplies of Labor. Manchester School, 22(2), 139-191. doi:

Lewis, A. W., 1980. The Slowing Down of the Engine of Growth. The American Economic Review, 70(4), 555-564.

Lyroudi, K., Papanastasiou, J., and Vamvakidis, A., 2004. Foreign direct investment and economic growth in transition economies. South Eastern Europe Journal of Economics, 1(2), 97-110.

Mauro, P., 1995. Corruption and Growth. The Quarterly Journal of Economics, 110(3), 681-712. doi:

Mauro, P., 1997. The Effects of Corruption on Growth, Investment, and Government Expenditure. IMF Working Paper, 96/98, 28.

Moore, D., and Vamvakidis, A., 2007. Economic Growth in Croatia: Potential and Constraints. IMF Working Paper, WP/07/198(aug.), 38.

Murgasova, Z., Ilahi, N., Miniane, J., Scott, A., Vladkova-Hollar, I., and IMF Staff Team, 2015. The Western Balkans 15 years of economic transition. In IMF (Ed.), Regional Economic Issues (REI) (pp. 118). Washington, D.C.: International Monetary Fund.

Rodrik, D., Hausmann, R., and Velasco, A., 2005. Growth Diagnostics. Official webpage, 1-35.

Tevdovski, D., 2015. Decent Work Diagnostics for a Western Balkan Country Stuck in the Neo-liberal Doctrine: The Case of the Republic of Macedonia. Global Labor Journal, 6(2), 203-220.

Tsounta, E., 2014. Slowdown in Emerging Markets: Sign of a Bumpy Road Ahead? IMF Working Paper, 14/205, 23.



  • There are currently no refbacks.