Globalization and economic growth in Western Balkan countries

Abstract

Globalization, as a process of world market integration, offers the possibility of economic growth. Therefore, the aim of the paper is to determine the long-term and short-term effects of economic, social, and political globalization on economic growth within Western Balkan countries transitioning from a centrally planned economy to a market economy. Annual data from 1998 to 2020 were analyzed using the autoregressive distributed lag approach (ARDL). The results showed a significant positive effect of economic and political dimensions of globalization on economic growth in the short run, while social globalization has no significant effect. The results also revealed a significant negative effect of political globalization and a significant positive effect of social globalization on economic growth in the long run, while there is no significant effect of economic globalization. The reasons for the different impacts of economic globalization should be sought in the fact that middle-income countries in their development path often fall into the "middle-income trap". To achieve the long-term effects of economic globalization on the economic growth of the Western Balkans, the governments of these countries and economic policymakers need to promote international trade and attract foreign direct investment. Also, Western Balkan countries have to build a better institutional framework which can motivate larger foreign investment inflow (especially greenfield investment), and which could make starting a business easier. For the Western Balkan area is very important and cooperation between countries can improve managing with globalization effects.