Economic Implications of EU Enlargement for the Western Balkans

Introduction 

The Western Balkans have been waiting at the EU’s doorstep for years. While headlines often focus on political roadblocks and rule of law deficiencies, especially in negotiation chapters 23 and 24, the economic dimension of enlargement is frequently underrepresented in public debate. Yet, it remains a fundamental pillar of the accession process. For countries in the region, joining the EU could mean faster growth, more jobs, and better living standards. For the EU, it is a chance to boost trade, investment, and economic stability in a region that is already closely tied to its markets. 

But the road ahead is complex. Despite clear potential, the Western Balkan economies still face deep-rooted issues: high unemployment, weak institutions, and low competitiveness. This paper looks at the EU’s enlargement through an economic lens, arguing that EU enlargement offers long-term economic benefits for both sides – but only if structural reforms and integration efforts are fully implemented. 

Background & Current Status 

The Western Balkans, comprising Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia, have long aspired to join the European Union. Since the 2003 Thessaloniki Summit, where the EU formally acknowledged their membership prospects, progress has been uneven and slow. Indeed, with the notable exception of Croatia, which successfully joined in 2013, the other states remain at various stages of the accession process (Dabrowski & Myachenkova, 2018). 

From an economic perspective, the stakes are high. The region suffers from persistent structural weaknesses, including high unemployment, limited competitiveness, underdeveloped private sectors, weak public financial management, and lagging green and digital transitions, all of which hinder convergence with the EU (European Commission, 2024). Moreover, key reforms in areas such as labour markets and the governance of state-owned enterprises have often stagnated (Bartlett & Oruc, 2021).  

Despite these hurdles, the region has become increasingly economically intertwined with the EU. The EU is the Balkans’ primary trading partner, absorbing over 80% of its exports and supplying around 60% of its imports (World Bank, 2024). However, these relationships remain asymmetric; the Western Balkans account for  only around 1.5% of EU trade (Gómez et al., 2022). 

Recent efforts to revive enlargement momentum, such as the EU’s Growth Plan for 2024-2027 and the revised accession methodology, signal renewed strategic interest (European Commission, 2023; 2020). This shift is driven in large part by security issues following Russia’s war in Ukraine, which has reinforced the geopolitical imperative of stabilizing the EU’s neighbourhood. However, significant hesitation remains among Member States. Concerns include the need for internal EU governance reforms, particularly around decision-making and budgetary capacity, as well as fears about the impact of admitting structurally weaker economies on cohesion and competitiveness (Stratulat, 2021; Freedom House, 2024).

Economic integration is progressing, but without deeper structural reforms and stronger political commitment, accession remains a moving target rather than an imminent reality (Steinbach, 2024;Qorraj, Krasniqi, & Gashi, 2024). 

Economic Benefits of Enlargement 

EU enlargement offers considerable long-term economic benefits for both the Western Balkans and the Union. Increased trade, investment, and labour mobility are among the most immediate gains. For the Western Balkans, closer integration promises to accelerate income convergence, reduce economic volatility, and attract sustained foreign direct investment (FDI) (Gómez et al., 2022). 

One of the most visible benefits is trade expansion. The Stabilisation and Association Agreements (SAAs) already provide significant access to the EU single market, but full membership would remove remaining barriers and increase predictability for businesses. Coordinated improvements in trade facilitation and full EU accession could boost Western Balkan welfare by 1.5 to 3 percent, demonstrating considerable room for growth in bilateral trade integration (World Bank, 2024). 

FDI inflows are another important vector of convergence. EU membership serves as a strong signal of macroeconomic and legal stability, which encourages investors. At present, over half of all FDI in the Western Balkans originates from the EU (Dabrowski & Moffat, 2024). Montenegro and Serbia already attract substantial FDI relative to the size of their GDPs, but analysts note that progress on rule of law and governance could significantly expand this further (World Bank, 2005-2024; Steinbach, 2024). 

Labour market improvements also come into focus. EU accession can catalyze job creation by boosting investment, supporting SMEs, and improving vocational training – addressing high youth unemployment and skills mismatches in the region (European Commission, 2024; Bartlett & Oruc, 2021). Furthermore, migration flows may shift from a pattern of permanent emigration to circular labour mobility, benefiting both home and host economies (Qorraj et al., 2024). 

Economic reform momentum is another positive spillover. Conditionality attached to accession incentivizes states to implement fiscal discipline, improve regulatory environments, and reduce corruption. Past enlargements show that these reforms, when sustained, produce measurable improvements in economic performance (Dabrowski & Myachenkova, 2018). 

Despite positive trends, however, the Western Balkans still have significant ground to cover. As shown in Figure 1, GDP per capita in the region – though steadily rising – remains well below that of benchmark EU economies like Germany, which illustrates both the magnitude of the convergence gap and the opportunity that EU accession could unlock (Bruegel based on IMF WEO, 2024).

For the EU, enlargement strengthens its geopolitical and economic presence in Southeastern Europe. It opens new consumer markets, stabilizes its periphery, and helps reduce the influence of rival powers like China and Russia in the region (Kostadinov, 2023). 

In sum, enlargement promises win-win economic gains. However, unlocking these benefits requires deeper reforms and sustained commitment on both sides. 

Challenges & Constraints 

Despite the economic promise of EU enlargement, several structural and institutional challenges continue to slow down progress in the Western Balkans. A central issue is the region’s limited capacity to function as a competitive market economy – one of the key Copenhagen criteria for EU accession. As highlighted by the European Commission, critical sectors still suffer from political interference, weak private sectors, and limited access to finance (European Commission, 2024). 

Labour markets are particularly dysfunctional, marked by high unemployment, especially among youth, low female participation, and widespread informality (Bartlett & Oruc, 2021; World Bank / WIIW, 2017). As illustrated in Figure 2, youth unemployment remains alarmingly high across the region despite overall improvement since 2015 – reaching over 30% in Bosnia and Herzegovina and Kosovo in 2022. These trends reflect persistent structural weaknesses that hinder job creation, limit productivity, and increase emigration pressures (Bruegel based on World Bank WDI, 2024).

Governance and rule of law remain persistent bottlenecks. Weak institutions, corruption, and poor regulatory quality undermine the business environment and investor confidence. According to World Bank governance indicators and Freedom House assessments, most countries in the region have seen stagnation or even deterioration in rule of law and corruption control (World Bank, 2005–2024; Freedom House, 2024). These shortcomings not only hinder economic growth and FDI inflows but also fundamentally obstruct the Western Balkans’ prospects of EU accession, as meeting the required benchmarks is impossible without achieving a satisfactory level of the rule of law. 

Another constraint lies in low absorption capacity. Without effective governance structures and public administration reforms, the Western Balkans risk not only underutilizing but also misallocating or wasting pre-accession funds and EU structural support due to persistent corruption (Qorraj et al., 2024). Moreover, intra-regional trade remains below potential, with many regional agreements still only partially implemented (European Commission, 2023). 

The geopolitical context also adds complexity. Persistent foreign influence – particularly from Russia and China – poses strategic challenges. Russia’s close ties with Serbia are reflected in Belgrade’s refusal to align with EU sanctions on Russia, raising concerns about the region’s economic cohesion and policy alignment (Kostadinov, 2023; Mihajlovic, 2024). Meanwhile, China’s growing economic presence through infrastructure investments and loan risks creating dependencies outside the EU framework (European Parliamentary Research Service, 2022). In parallel, unresolved bilateral disputes – such as those between North Macedonia and Bulgaria – continue to hamper regional cooperation. 

These constraints suggest that while economic integration with the EU is desirable, it must be underpinned by deep structural reforms, better governance, and enhanced regional cooperation to ensure real convergence. 

Policy Recommendations 

To unlock the full economic potential of EU enlargement for the Western Balkans, both the EU and candidate countries must adopt a more targeted and credible strategy grounded in mutual accountability and economic reform. First, the EU should strengthen conditional funding mechanisms by fully implementing the Reform and Growth Facility (European Commission, 2023), ensuring that disbursements are tied to concrete socio-economic progress and rule-of-law benchmarks. Transparency in evaluating “Reform Agendas” should be enhanced to enable civil society oversight (Jacques Delors Institute, 2024).

Second, accelerated but conditional access to the Single Market should be used as an incentive to deepen regional integration and drive convergence on EU economic standards (Jacques Delors Institute, 2024). However, this integration must go hand in hand with broader structural reforms to avoid creating a “two-speed” Europe where market access is decoupled from full membership (Stratulat, 2021). 

Third, the EU should increase financial assistance and reduce the absorption gap by scaling funding closer to levels available to new Member States and by supporting administrative capacity-building in weaker economies (Steinbach, 2024). 

Finally, candidate countries must prioritize reforms that strengthen market functioning, improve competitiveness, and reduce informality – especially in labor markets and state-owned enterprises (European Commission, 2018; Bartlett & Oruc, 2021). The Western Balkans need to show credible reform commitment to seize the EU’s renewed interest in enlargement. Without this, long-term economic convergence will remain elusive. 

Conclusion 

EU enlargement to the Western Balkans presents a critical opportunity for long-term economic growth and regional stability. While integration promises access to the Single Market, increased investment, and income convergence, these benefits hinge on the successful implementation of deep structural reforms. The EU’s renewed financial and political commitment – especially through instruments like the Reform and Growth Facility – marks a positive shift, but credible progress must come from both sides. Candidate countries must demonstrate sustained reform momentum, while the EU should ensure that its support is ambitious, consistent, and fairly distributed. If enlargement is to be more than a geopolitical slogan, it must deliver tangible economic improvements and restore trust in the accession process. Only then can the promise of shared prosperity become reality. 

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