Foreign Direct Investment and Backward Spillovers in the Western Balkans

This article investigates how regional supply chains support the Western Balkans’ economic growth. It first identifies the role of the cefta free trade agreement in expanding the size of the local market and opening up regional trading opportunities. It recounts how the larger market and specific industrial policies have attracted foreign direct investment (fdi) to the region in recent years. It analyses how these two factors have combined to generate export-led growth in the region and have brought about substantial structural changes within these economies. The article argues that to take continued advantage of the success in trade liberalisation and fdi attraction, policymakers should pay special attention to promoting backward spillovers by promoting linkages between local small and middle sized enterprise (sme) supplier firms and the newly arrived multi national corporations embedded into global value chains. Policies should be adopted which build the capacity of local sme suppliers within regional supply chains, both in terms of labour force skills and technological upgrades. The EU’s recently launched Economic and Investment Plan for the Western Balkans and the activities of the Western Balkan Six Chamber Investment Forum may support such policies.