Diagnosing constraints to economic growth in Serbia

This article examines the dominant patterns of economic growth in Serbia since 2001 in light of global circumstances, dominant domestic policies, and the spontaneous development of the private sector in such conditions. During this period, Serbia's economy grew at a rate of about 3%, reaching a per capita GDP level of about 50% of the EU average in 2024. This is often assessed as an insufficiently strong convergence ([38] or [50]). Without intending to evaluate quality or size of growth, we use the growth diagnostic approach, developed by Hausmann et al. [26] to identify the factors that have limited investments and therefore economic growth, to determine main obstacles to future growth and areas in which public policies should be sought to ensure that future growth is sustainable and developmental. We find that obstacles are related to (1) access to financing due to an underdeveloped capital market and limited bank financing of SMEs, (2) human capital due to negative demographic trends, the outflow of qualified labor, and inadequate education, and (3) poor institutional mechanisms that affect the quality of governance both in the domain of market mechanisms (coordination and competition) and state governance mechanisms (corruption, rule of law). These findings, consistent with other similar studies, suggest that to effectively address these obstacles, future policies should focus on promoting a more diverse and competitive financial sector, fostering a better coordination of companies, providing more generous and proactive government support to domestic SMEs, enhancing the quality of education and continuing anti-corruption activities.