Open to Global Trade, Struggling to Compete: The Western Balkans’ Missing Economic Opportunity

The Western Balkans is projected to see stronger economic growth through 2028, but costly trade regulations and alarmingly low export survival rates threaten its competitiveness. A new World Bank report estimates that removing half of the remaining import barriers could increase regional GDP by up to 12.5%, highlighting the economic potential of regulatory reform and its importance for better-paying jobs.

The Western Balkans is heading toward stronger economic growth, yet a less visible obstacle threatens to limit the benefits of its expanding international trade. Regulatory costs, complicated administrative procedures and restrictions on cross-border services continue to undermine business competitiveness, raising questions about whether greater market access can deliver sustained export growth and better-paying jobs.

The World Bank's latest Western Balkans Regular Economic Report projects average growth across Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia at 3.1 percent in 2026, compared with 2.6 percent in 2025. Growth is expected to reach 3.4 percent in 2027 and remain unchanged in 2028, supported by consumption and investment.

Behind these improving projections lies a structural challenge. The region has substantially opened its economies to global commerce, but businesses continue to face significant expenses after goods and services have gained formal market access. The emerging economic question is whether regulatory reform can translate extensive trade integration into more durable commercial activity, stronger firms and improved employment opportunities.

Open Markets, Expensive Trade: The Limits of Tariff Liberalization

Trade liberalization has fundamentally expanded the Western Balkans' international economic engagement. Goods and services trade reached 107 percent of regional GDP in 2025, exceeding the European Union average of 90 percent. Services exports also increased fourfold between 2010 and 2025, demonstrating the scale of the region's growing participation in international markets.

However, these achievements conceal an important distinction between openness and competitiveness. A high trade-to-GDP ratio demonstrates substantial cross-border economic activity, but it does not establish whether businesses can trade efficiently or maintain profitable export relationships. Formal access to international markets offers limited advantages when companies must navigate costly administrative procedures.

The World Bank estimates that average import tariffs stand at approximately 6 percent, while non-tariff measures impose additional costs equivalent to 10 percent. In certain agri-food sectors, these expenses exceed 20 percent, indicating how regulatory requirements can create substantially different burdens across economic activities.

Cross-border services face an even greater constraint, with restrictions carrying estimated costs of 29 percent. Such barriers take on particular significance given the rapid expansion of regional services exports. Although the region has benefited from progressively lower tariffs, restrictions involving licensing, authorizations, certifications and local-presence requirements continue to complicate international transactions.

The figures expose a changing trade-policy challenge. Further reductions in conventional tariffs may offer less practical benefit if businesses remain subject to overlapping procedures and repeated inspections. The ability to compete internationally increasingly depends on the efficiency of regulatory systems operating behind national borders.

Why Export Survival Holds the Key to Better Jobs

The consequences of expensive trade extend beyond import transactions. Higher costs for goods and services entering the region can also weaken the competitiveness of businesses selling abroad. Companies seeking sustained international operations must manage these expenses alongside the requirements involved in maintaining access to foreign markets.

The region's export survival figures reveal the scale of this difficulty. According to the World Bank, only about one-third of new export ventures survive their first year, while just 1 to 4 percent reach their fifth year. These numbers expose a sharp contrast between the region's substantial trade integration and the ability of individual firms to maintain international commercial relationships.

Entering an export market and remaining competitive within it are different economic achievements. While the report does not attribute weak export survival exclusively to regulation, it identifies higher import costs as an obstacle to firms seeking to export and sustain their presence abroad. Reducing unnecessary trade expenses could therefore improve conditions for businesses already operating in international markets.

Employment gives this challenge a wider economic dimension. Trading companies account for the vast majority of manufacturing employment across the Western Balkans. They also tend to operate on a larger scale and pay higher wages than comparable companies focused primarily on domestic customers.

Stronger export performance could consequently support opportunities within businesses associated with relatively better employment conditions. However, improved market access cannot automatically guarantee higher wages or additional jobs. The employment benefits would depend on whether firms translate lower transaction costs into stronger operations and sustained commercial activity.

These findings also challenge the usefulness of evaluating trade performance through aggregate export figures alone. Rapid growth in services exports and extensive international integration are encouraging indicators, but persistently low export survival suggests that the durability of business participation deserves equal attention.

A 12.5% GDP Opportunity Comes With a Regulatory Test

The potential economic gains from addressing these barriers are substantial. World Bank simulations indicate that removing half of the remaining import barriers could increase regional GDP by up to 12.5 percent over the medium term. The estimate illustrates the economic significance of regulatory costs, although it represents a modeled scenario rather than a guaranteed outcome.

Crucially, this potential increase is separate from the report's baseline growth projections through 2028. Achieving benefits from regulatory reform would require effective implementation and sufficient business responses to lower costs. The simulation should therefore be understood as an indication of possible gains rather than an additional forecast of economic expansion.

The proposed approach emphasizes better regulation rather than simply fewer rules. Streamlined and digitized procedures, risk-based inspections, and recognition of aligned standards and qualifications could reduce unnecessary duplication while maintaining safeguards intended to protect legitimate public interests.

This distinction presents governments with a demanding policy balance. Licensing, certification and inspection requirements can serve necessary functions, but excessive complexity can impose costs without corresponding economic benefits. Reform must therefore distinguish essential regulatory protections from procedures that unnecessarily obstruct commercial activity.

The next test will be whether the six economies can translate these priorities into practical administrative improvements. Lower compliance costs, stronger export survival and sustained employment among trading firms would provide meaningful indicators of progress, although the pace and effectiveness of reform remain uncertain.

For the Western Balkans, the emerging growth outlook offers encouraging economic prospects, but stronger headline figures alone will not resolve underlying competitiveness constraints. Having achieved extensive integration into global trade, the region now faces a more difficult task: ensuring businesses can remain competitive within those markets long enough to convert commercial openness into lasting economic gains.