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Determinants of the Trade Balance in the Western Balkan Countries: A Panel Data Approach

Author

Listed:
  • Agon Salihu
  • Rahmije Mustafa Topxhiu

Abstract

This study investigates the economic factors affecting the trade balance of six Western Balkan countries: Albania, Kosovo, Serbia, North Macedonia, Montenegro, and Bosnia Herzegovina, using data from 2000 to 2021. Key variables such as GDP growth rate, foreign direct investment (FDI), remittances, inflation rate, consumption, real effective exchange rate (REER), and fiscal balance are analyzed. The objective is to evaluate how these macroeconomic indicators influence the trade balance, providing insights for economic policies in the region to enhance competitiveness globally. Four econometric models, OLS, OLSR, RE, and FE, are employed, with the fixed effects (FE) model identified as the most appropriate. Results indicate that consumption, remittances, inflation rate, and foreign direct investments have a negative and significant impact on the trade balance of Western Balkan countries. To tackle trade deficits, the study suggests implementing structural economic reforms, increasing investment in sectors where comparative advantages exist, diversifying exports, and emphasizing higher value-added goods and services in the global value chain.

Suggested Citation

  • Agon Salihu & Rahmije Mustafa Topxhiu, 2025. "Determinants of the Trade Balance in the Western Balkan Countries: A Panel Data Approach," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 53-72.
    • Handle: RePEc:bas:econst:y:2025:i:2:p:53-72
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    File URL: http://archive.econ-studies.iki.bas.bg/2025/2025_02/2025_02_04.pdf
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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