An Empirical Analysis Of The Determinants Of Economic Growth In The Western Balkans

The objective of this paper is to assess the main determinants that affect economic growth, and also the policies that may affect it, in the Western Balkan over the period 1994 to 2015. For this purpose we employ different techniques: OLS with robust error, fixed and random effects model, and Hausman-Taylor model with instrumental variables (IV). The study shows the evidence of conditional convergence, indicating to the need for an upward move in the steady state level of the Western Balkan region. The results show that foreign direct investments, gross savings and domestic credit to private sector have a positive effect on per capita growth. On the other hand, initial level of per capita growth, corruption, unemployment, and general government final consumption, have a negative relationships with per capita growth. Moreover, the paper shows puzzling results of the schooling which is not significant factor for growth in the Western Balkans. The study also highlights the relevance of attracting more foreign direct investments and reduction in corruption. JEL Codes - E60; O11