Regional Integration in Western Balkans: A Case for Cross-Border Business Cooperation?

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AbstractConsidering the regional trade pattern and business potential in the Western Balkans, we argue that despite the significant political, institutional and socio-economic advances of the individual countries during the last 20 years, regional integration and endogenous business development are still lagging. This is much the outcome of persistent state rigidities and trade distortions. On the one hand, regional integration has been adopted as the policy for enhancing the region’s competitiveness in the context of EU accession and globalization. But this has been only manifested in Regional Trade Agreements with the EU. On the other hand, trade relations among the region’s countries are weak. Many governments have maintained intra-regional trade barriers to secure customs revenues, while they have directed trade to EU markets. However, results have been poor: FDI and exports have risen only in textiles, metals and mining where competitiveness is based on cheap labor or natural resources; and very few local companies have been able to compete in EU markets as most are too weak financially to upgrade production to EU high value-added standards. Nevertheless, data supports that intra-regional trade is important for the countries and sectors in question. Trade with neighboring countries can be a realistic way to improve the potential of local businesses – struggling with obsolete equipment, high debts and low productivity. Restoring old trading relationships interrupted by war could considerably increase cross-border trade, and assure regional business viability. The barriers posed by the individual countries in the region to doing business especially across borders, indicate that regional integration in Western Balkans is very weak from the economic point of view. We argue however, that regional integration from a socio-cultural point of view – built on people’s common historical background, shared goals and concerns for good neighborly relations – constitutes a solid base for cross-border business cooperation. We outline here an analytical approach, capturing the complexity of the war-torn Western Balkan area and its socio-cultural and political specificities, overlooked by mainstream economics. We argue that Western Balkan countries can accelerate their economic development by exploiting their potential for cross-border trading and entrepreneurship. This may offer a politically and economically realistic strategy for regional integration in the area. Economic development and regional cooperation could directly benefit stability and security as well. Cross-border business clusters, embedded in common socio-economic contexts, could act as development leverage. Existing obstacles need to be addressed and overcome; and this is more a question of political willingness than of corporate strategy.KeywordsRegional integrationBusiness clustersTransition economiesJEL Classification CodesR11F59P25