The Integration of Western Balkan Economies in Global Economic Flows

Abstract

In the last decade of the twentieth century, the process of internationalization of production and trade has been intensified. It is a process of opening of national markets in terms of free flow of goods, capital and labor. Moreover, it contributes to sustainable development by offering better conditions under which goods are produced and traded. From the moment of independence countries of Western Balkan have chosen to become democratic societies followed by other advanced transition countries. All countries of the Western Balkan (WB) have accepted the market economy as the basic orientation and long-term perspective of their social and economic development. This fact constant of the new economic reality in the WB region had certain significance to their further development. The main objective of this paper is to show the effects of globalization on the level of integration of the WB in the global economic flows. This paper uses a cross-country comparison methodology and examines the following aspects: progress made with capital account liberalization on the economy of Western Balkan region, what are the changes in the structure of trade, as well as the involvement of these countries in the global financial system. The process of trade and capital-account liberalization enabled transitional countries to gradually integrate into international trade and financial flows at the end of the 1990s. The effects of such processes have been demonstrated in increased inflow of foreign direct investments, increasing international trade and increasing foreign exchange reserves.The paper is divided into five sections. Section 2 deals with the impact of capital flows on the economy of Western Balkan countries. Section 3 analyzes trends in Trade reorientation of economies of Western Balkan. Section 4 analyzes trends in foreign direct investment (FDI) flows.The findings and discussion presented in previous sections of this article ends with conclusions that the WB countries achieved significant progress in the reorientation of trade and start the process of reintegration into the international financial flows. From an economic point of view, the past decade has shown that all the WB countries largely depend on their cooperation with the EU, either through foreign direct investment, loans or grants. Effect of geographic proximity is an important factor that influenced on high level trade exchanges with the EU gave companies from EU a major competitive advantage in initiating the international expansion of their activities in neighboring countries (WB region). Thanks to the reforms and the promising economic outlook region of WB become a place where investors with regional ambitions had the greatest potential for cross border expansion. This is especially important in the context of the region's aspiration to join the EU.