Intra-regional cooperation in the Western Balkans: under which conditions does it foster economic progress?

The main motivation for regional cooperation in the Western Balkans is provided by the EU, formulating it as conditional for the countries’ EU accession aspirations. Economically, this claim includes the establishment of regional free trade agreements (RTAs) whose direct economic effects are twofold and limited: Whereas inflows of FDI are likely to increase due to a bigger market, an increase of interregional trade will be moderate and might even stall microeconomic restructuring. To gain considerable profits from regional economic integration, transnational linkages on a microeconomic level as the emergence of cross-border alliances, joint efforts to conquer West European markets, or cooperation in R&D to enhance innovation are needed. Gains from a RTA thus will be of indirect nature: Long term profits result only from overcoming the aversions against regional partnerships and from the re-emergence of mutual trust.