The Role of Institutional Development in Creating Knowledge Based Economies: The Example from the Balkan Countries

The aim of this paper is to present the role of institutional development in creating knowledge based economies which will further foster higher prospects for economic growth. A knowledge based economy is one that exploits knowledge to develop and maintain long-term economic growth. One of the postulates of the Knowledge Based Economy Framework is the economic and institutional regime that is beneficial to creation, transmission and utilization of knowledge. This regime provides incentives that promote the use and distribution of existing and new knowledge capably will help to foster policy change. Further on, the economic environment must have good policies and be encouraging to market transactions, likewise being open to free trade and FDIs. More importantly, the government should protect property rights to persuade entrepreneurship and knowledge investment. In order to depict the importance of institutional development in creation of knowledge based economies example is used by comparing the Knowledge Economy Index (KEI) for the Balkan Countries. The results indicate that countries that are EU members like Bulgaria, Croatia and Slovenia have higher KEI compared to Albania, Bosnia, Macedonia and Serbia. The main conclusion to be drawn is that countries with higher institutional development have higher KEI.