Impact of Macroeconomic Determinants on Economic Growth in the Western Balkans, 2000-2017

Abstract

This study aims to investigate some of the main macroeconomic determinants that have influenced the economic growth in 6 Western Balkan countries (Albania, Bosnia & Herzegovina, Kosovo, Macedonia, Montenegro, and Serbia). Data are taken for 18 years (2000-2017) from the World Bank database. Determinants included are inflation, foreign direct investment, interest rate, unemployment (percentage of the total labor force) and government spending (as a percentage of GDP). In the early 2000s, the region experienced rapid growth and faced many economic challenges but it still suffers from weak institutional reforms that prevent the region to reach high living standards of European countries. Because of previous studies by different authors, it is obvious that FDI is positively and significantly correlated with economic growth while in the other hand most of the studies found a negative but significant relationship between inflation, unemployment and government spending with GDP. As the results from VAR model indicate, macroeconomic determinants affects in different ways economic growth.