The Effect of Corruption on Economic Development: An Empirical Analysis of Western Balkans Countries

The progress of Western Balkan countries has been influenced by similar factors of a political, social, and geographical nature. Their recent transition into a functional market economy has brought economic growth, but it is accompanied by negative phenomena as well. Stimulating economic development, gender equality, urbanization, human development, and economic freedom challenged these countries. Since the beginning of the 1990-s, international institutions have strongly supported these countries. They have contributed to encouraging advancement, as well as overcoming the obstacles that have been similar in these countries. Corruption is one of them that can hinder development and has consequently attracted the attention of all stakeholders to fight against it. Many indicators are generated in recent decades to measure both economic development and encumbering factors. Analyzing the indicators and comparing them between countries intends to promote their improvement and to identify the best practices at the regional level. This paper aims to examine the relationship between corruption and economic development in Western Balkan countries in the last two decades. The panel time-series autoregressive distributed lag (ARDL) model is used for making the empirical analysis for a period from 2003 to 2019, based on official data from local and international sources. The ARDL model used and the time span of data involved make this study distinct from the other surveys done for the same region. The results from the model application have enabled a detailed analysis and discussion of the main findings. There are recommendations drawn for the future, applicable both at the country and region level, especially with recent advancements of two countries – Albania and North Macedonia – toward EU integration.