Crowding in or crowding out? : public and private investment in the Western Balkans

This note examines whether public infrastructure investment crowds in private investment in the Western Balkans and how this relationship compares with the EU. Using Eurostat data for 2000-2024 and a sector-level analysis, it finds that higher public infrastructure investment is generally associated with higher private investment in the region, broadly in line with EU patterns. One sectoral difference stands out: public investment in health infrastructure generates much smaller crowding-in effects in the Western Balkans than in the EU, plausibly reflecting weaker domestic complementarity, given the limited healthrelated industrial base. Crowding-in effects in the region are strongest in education, followed by information and communication, while energy, water and waste, and transport show more moderate effects, and health exhibits the weakest effect. Overall, the results suggest that scaling up public infrastructure investment can mobilise private capital in the Western Balkans, with particularly high returns in education. Where fiscal space is constrained, prioritising investment towards sectors with stronger crowding-in effects can improve impact, while stronger support for domestic health-related capabilities could increase the payoff from health infrastructure spending.