The effects of EU accession process and firm investment dynamics on Western Balkans sustainable economic growth

This paper examines how Western Balkans' EU accession process and associated reforms influence investments by regional and non-regional firms, and how these investment flows affect sustainable regional economic growth. Using cross-border and domestic firm transactions involving Western Balkan companies between 2000 and 2024, we find that regional investments rose after 2010, when all five Western Balkan countries intensified reforms required by the EU accession process. We also find that regional firm investments drive more sustainable economic growth than non-regional investments in sectors prioritised by EU Green Agenda indicating that regional firms leverage EU initiatives more effectively. Our results show that both regional and non-regional investment effectiveness improves with control of corruption, political stability, and government effectiveness. However, after 2010, the influence of corruption control diminishes as EU accession expectations increasingly subsume investor concerns, while government effectiveness emerges as a central mediating mechanism, particularly for regional investors. We also find that excessive regulatory quality and voice and accountability constrain investment effectiveness, underscoring the need for targeted policy reforms in these areas.