1. Roanoke College
The Role of the Stabilization and Association Process in Trade Liberalization and Development
of the Western Balkans
Emily K. Bayens
IR 401A International Relations Seminar
Dr. Joshua B. Rubongoya
29 March 2016

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ABSTRACT The European Union has a certain set of requirements which a state must meet
before it is able to join and reap the benefits of the Common Market. However, by
completing these requirements, a state will relinquish part of its sovereignty in order to join
the EU and gain access to wider markets. Trade Liberalization is one of the requirements,
which is thought to bring about the greatest amount of economic growth. By completing the
Stabilization and Association Process, the Western Balkans will liberalize their economies
and receive the benefits of trade liberalization that can be applied to social development.
1. Introduction……………………………………………………………………………………3
2. The Balkan Experience………………………………………………………………………..4
2.1 Yugoslavia in the World Wars……………………….………………………………..5
2.2 Yugoslavia and Tito’s Socialism……………………………………………………...5
2.3 A Transforming World, a Transitional Yugoslavia……………..…………………….7
3. Literature Review……………………………………………………………………………..8
3.1 Capitalism and Dependency Theory……………………………………………………..10
3.1.1 Asymmetrical Trade and Dependency…………………………………………12
3.2 A Commentary on the Fall of Communism: Differences in Literature………………….12
3.3 Stability in Interregional and Intraregional Liberalization………………………………14
3.4 Foreign Direct Investment……………………………………………………………….16
3.4.1 Stabilizing Effects of Foreign Direct Investment……………………………………...16
3.5 Geography………………………………………………………………………………..18
3.6 Transport……………………………………………………………………………………..19
4. Methodology…………………………………………………………………………………21
5. Research and Findings……………………………………………………………………….23
5.1 Does Trade Liberalization affect Economic Growth?.......................................................23
5.1.1 Trade Liberalization and Economic Growth for the Western Balkans………...25
5.1.2 Trade Liberalization and Economic Growth in the Central and Eastern European
Countries………..………………………………………………………………..26
5.1.3 Trade Liberalization and Economic Growth in the EU Member Western
Balkans………………………………………………………………………..….27
5.2 The success of the Stabilization and Association Process in the Balkans…………...….28
5.2.1 Inter- and Intra-Regional Relations and Cooperation……………….................28
5.2.2 Transitional Policies of Transitional States Attempting Accession….……..….31
5.2.2.1 Competition and Dumping……………….......….…………………...32
5.2.2.2 Investment Promotion and Protection………………………………..32
5.2.2.3 Sectoral Revitalization……………………....……………………….33
5.2.2.4 Transportation……....………………………………………………..33
5.2.2.5 Free Movement of Goods and Duties………………………………..34
5.3 Open Markets and Economic Growth……….....………………………..……………...35
6. Conclusion…………………………………………………………………………………...36

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7. Appendences…………………………………………………………………………………39
7.1 Country Accession Groups…………………………………….………………………..39
7.1.1 Western Balkans GDP at market prices (current US$), Imports of goods and
services (current US$), Exports of goods and services (current US$)…..………40
Appendix 1: Albania……………………………………………………………..40
Appendix 2: Bosnia and Herzegovina………………………………………...…40
Appendix 3: Kosovo……………………………………………………………..41
Appendix 4: Former Yugoslav Republic of Macedonia (FYROM)……………..41
Appendix 5: Montenegro………………………………………………………...42
Appendix 6: Serbia………………………………………………………..……..42
7.1.2 Central and Eastern European Countries (2004 ascending countries) GDP (at
current US$), Imports of goods and services (at current US$), Exports of goods
and services (at current US$)………………………….………………………..43
Appendix 7: Czech Republic………………………...………………………….43
Appendix 8: Hungary……………………..…………………………………….43
Appendix 9: Poland………………………………..……………………………44
Appendix 10: Slovak Republic……………...…………………………………..44
7.1.3 Balkan EU Member States (Bulgaria, Croatia, and Romania) GDP (at current
US$), Imports of goods and services (at current US$), Exports of goods and
services (at current US$)…………………………………………...……….….45
Appendix 10: Bulgaria………………………………...………………….……45
Appendix 11: Croatia…………………………………………………….…….45
Appendix 13: Romania………………………………………….……………..46
7.2 Trade Opennness and Economic Development…………………...…………………47
Appendix 14………………………………………………………………………….47
Appendix 15………………………………………………………………………….48
Bibliography…………………………………………………………………………………52

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1. Introduction
Development is a highly contested concept with many facets that can attribute to a
country’s well-being. Ranging from economic success to levels of happiness, development can
be measured in many different ways, which means that it is derived from many different sources.
Trade, which is characteristically measured in quantitative, empirical terms, has the ability to
potentially provide the economic growth necessary to provide for a developed life to states. This
paper argues that the development of states lies heavily in the functions of trade, which when
pursued through liberalized practices such as free trade, will be optimally expansive to a
country’s economy. However, in order for trade liberalization to be effective and an agent of
development, there must be effective policies and institutions that hold up the framework of
trade liberalization.
The Western Balkans is an interesting case for applying the principles of liberalization to
for several different reasons. First of all, the economies of the Western Balkans (Albania, Bosnia
and Herzegovina, Kosovo, the Former Yugoslav Republic of Macedonia, Montenegro, and
Serbia) were in a transitional stage after emerging from behind the Iron Curtain because of the
socialist and communist regimes dissolving in the 1990s. Then, the states were also faced with
the Yugoslav Wars, which would further disrupt the emerging states’ economies and trade. In
order to create stability in the region and to achieve its own goals of expansion, the European
Union made agreements with the countries emerging out of former Yugoslavia.
The Stabilization and Association Agreements were a series of arrangements between the
European Union and the states of the Western Balkans. The purpose of these agreements is to
stabilize the states with the goal of eventual accession to the EU, which has its own criteria found
in the acquis communautaire. The requirements of the acquis communautaire through accession

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very much reflect the values and principles that are prized by the EU. They include the deep
regard for diminishing barriers to trade, and are visible in the requirements of the Stabilization
and Association Process.
A concerning issue for European nations and scholars in the international community
about the accession of the Western Balkans, or perhaps any European state for that matter, is that
of surrendering sovereignty to the EU. Why would a state give up its most valuable facet,
sovereignty, which gives it all of its power in the modern nation-state system? States will give up
their sovereignty to join the European Union in order to access larger markets that will give way
to opportunities to increase trade, which will produce more revenue that can be used to further
development.
2. The Balkan Experience
To understand the modern Balkans, it is first important to have a comprehensive knowledge
of the states and their history to understand their experiences of transition and accession. The
complexities that characterize intra-regional cooperation now stem from a historical narrative
that must be put into context. Comprehending the drastic nature of the transition economy, it is
first crucial to understand the experience of the Balkan states. First, the demographic makeup is
very diverse through a complex concept of ethnicity and nationality, which has only been shaped
from years of complicated history between the nations on the Balkan Peninsula. Secondly, the
history of the region, shaped a certain set of events that formed the cultural ideas of policies in
the socialist state of Yugoslavia, and unlike walls, cultural ideas and norms cannot be torn down
as easily.
In addition to the states that compromise the Western Balkans, stated earlier, the states
that are typically known today to make up the Balkans include Bulgaria, Croatia, Romania, and

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Slovenia. Bulgaria, Croatia, and Romania are the only states from the region that have joined the
European Union. Greece has a geographic proximity and importance to the region, but has a
much different history than the countries listed, and therefore, is typically not associated with the
Balkans. All of the states known as the Western Balkans, aside from Albania, were part of the
Social Federal Republic of Yugoslavia, which disassembled during the Balkan Wars of the
1990s. Aside from other factors, this war was caused by the historic, different nationalities that
make up the Western Balkans.
2.1 Yugoslavia in the World Wars
When the Austrian-Hungarian Empire eroded in the early twentieth century, the nations
of the Balkans united in fear of expansionist Italy (Curtis: 1992, 26-27). From the beginning, of
the union, there were contested ideas of whether Yugoslavia should be centralized or a republic,
which fueled ethnic, religious, and cultural tensions among the people. Ultimately, the state
became a monarchy known as the Kingdom of Yugoslavia (1992, 29). During World War II,
though, the beginnings of a new regime began playing out. Yugoslavia was attacked by the
Germans, and Tito, the marshal and prime minister of the country, negotiated with Stalin in order
to secure the country (1992, 41-42). This secured Tito’s future position as leader of the country
as well as gave way to the future of Yugoslavia.
2.2 Yugoslavia and Tito’s Socialism
In the postwar period, the Communist Party was able to politically secure Yugoslavia.
Tito headed the country as prime minister, and his supporters filled cabinet positions. The
monarchy was dissolved, and the Kingdom of Yugoslavia became the Socialist Federal Republic
of Yugoslavia in 1945. Six republics were formed under the new government, comprising of a
federation. A Soviet-style economy was adapted. By doing so, the state enacted land

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redistribution and rapid industrialization policies (1992, 44). However, distrust and anger came
to characterize Stalin and Tito’s relationship. Stalin felt as Soviet control of socialism was
threatened in Europe, by Yugoslavia. After Soviet economic sanctions in the form of blockades
and propaganda against Tito, the rift between the two became larger, and Yugoslavia assumed
that Soviet invasion was imminent. Relationships would not be mended until after Stalin’s death
between the two states. During this time, the trade relationship between the Soviet Union and
Yugoslavia dwindled. Because of the strained relations between Yugoslavia and the USSR, the
West began to send aid to Yugoslavia in the true Cold War fashion (1992: 46-47).
Due to the relationship with the largest socialist bloc being strained, Yugoslavia was
faced with no option other than to reform national economic policies. State ownership of the
means of production became social ownership, which meant that management responsibilities
went to workers, although government-appointed directors held veto power over the decisions.
This type of organization became known as the self-management system, which forced the
communist party to loosen its reigns on decisions over the market economy (Curtis 1992: 47-48).
The self-management system led to an era some scholars refer to as “a golden period of the
Yugoslav economy” (Horvat qtd. in Mahmutefendić: 2012, 29). Trade also grew during this
period, uncharacteristically for a state-planned economy. Yugoslavia showed the second highest
growth rate between 1957 and 1960 after the economic policy changes. Social development
indicators such as education and healthcare improved drastically as a result (1992, 47-48).
Trade had, interestingly, always been important to the Yugoslav economy, especially
after blockades by the Soviet Union and the rest of the socialist Eastern European countries. The
Common Market Economies of the European Union doubled their imports from Yugoslavia,
although they tripled imports from other countries in the 1970s. However, Yugoslav trade with

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the Common Market fell by 15 percent in the first half of the next decade (McFarlane: 1988, 93).
These relationships with countries in the European Economic Community undoubtedly have
effect on the current relationship between the states of the Western Balkans and the European
Union today.
By the 1980s, Yugoslavia had fallen into a drastic trade deficit, and was forced to adopt a
policy to “export by any means.” Yugoslavia was forced to accept help from the IMF with the
familiar Structural Adjustment Package. The Communist common market, the CMEA, was once
again important for Yugoslav trade, and the Soviet Union was the largest trade partner.
Yugoslavia, in its attempt to build its economy through trade, built relations with developing
countries in Asia, Africa, and South America. However, trading with such small countries was
not enough to achieve Yugoslavia’s goals of integrating into the global economy (McFarlane:
1988, 94-95).
2.3 A Transforming World, a Transitional Yugoslavia
When the 1990s rolled around, the international system was radically shaken. The end of
the Cold War, which had defined political agenda for so many states’ foreign policy was finally
over. With the fall of international communism, some scholars, such as Craig Nation (2003),
believe that the “post-Cold War disorder” was so powerful that it had the ability to destroy the “
predictable context for domestic development, interstate relations, and great power engagement,”
that had been seen in Yugoslavia since the end of World War II (77-78). Tensions began in the
1980s when Serbia and Kosovo disagreed about the latter’s autonomy. As the communist
countries of Eastern and Central Europe began dissolving, the sentiment to oust the communists
was shared among the different republics that made up the Yugoslav Federation. The fighting

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lasted for roughly a decade and is remembered as one of the most gruesome parts of world
history in the modern day.
With the bloody civil war being fought in the Balkan region, it was in the European
Union’s best interest to stabilize the area, and with the interest of expansion, this could become a
reality through the Stabilization and Association Process. However, with the new states at war, it
would be necessary to rebuild the relationships in the area, as well as to transform the states’
policies and practices into those that would be more conducive in a united, European way. To
begin stabilizing the area and the process of enlargement, it became necessary to adapt
procedures that would develop the Western Balkans. This would be done in a familiar manner by
the European Union: through trade liberalization.
3. Literature Review
The literature referencing development and trade largely points to trade liberalization as
the key principle to expanding a state’s development. By opening markets through liberalization
processes, states are more likely to create trade relationships with more partners, which will
increase revenue. This increase in revenue can then be used in order to develop society, as the
literature often equates development in terms of economic growth when discussing its
relationships to trade. However, as authors such as Barrel (2006) believe, trade should not be
considered as an end, but rather a mean in coordination with many other instruments to
propagate a state’s development (219). It is also known that by creating intense economic
transactions between neighboring countries, both sides will contribute and benefit (Skayannis
and Skurgiannis: 2002, 42).
Petrokos (2002) says, “The inability to sustain the pre-1989 economic and political
structures has forced a process of transition from central planning toward a Western-type market

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economy in [the Balkans]. This process has been supported by market-oriented policies, that is,
privatization, liberalization, and internationalization, and by policies of institutional changes [i.e.
the Stabilization and Association Process)]” (7).
The general measurement for development in terms of trade is economic growth.
However, a concept as contested and researched as development must include a multi-faceted
approach. The Comprehensive Development Framework, defined by the World Bank is “a
holistic approach to development, highlighting the interdependence of social, economic, human
capital, governance, environment and financial aspects of development” (The Road to Stability
and Prosperity in South Eastern Europe: 2000, 6). This approach is useful when looking at the
benefits of joining the European Union and conforming to the Stabilization and Association
Process because of the many facets also included in the Stabilization and Association Process as
well as the acquis communautaire.
The European Union, in its constitutional document, The Treaty of Lisbon, orders for the
establishment of “an internal market” (2007, Article 2). Through this internal market, the
development of Europe shall be sustained using economic growth and macroeconomic principles
such as price stability and a competitive work force. The sustainable development shall work to
create social progress and protect the environment (Lisbon Treaty, 2007, Article 2).
Because of this holistic approach and expansive idea of development, the process of
achieving acquis communautaire is one which must take a great deal of factors into
consideration. In terms of Europe and the EU’s values, this paper argues that development
emerges from economic growth, revenue, a functioning market economy, and economic
liberalization. Along the way to achieving these things, though, the acquis communautaire

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establishes positive social conditions such as employment and education through the process of
accession.
Mehrotra and Jolly point out that growth does not necessarily lead to social development
(2000: 442). Instead, they argue, development is achieved from state activity in “cataly[zing] the
synergy between interventions which promote poverty-reducing growth and social development”
(2000, 445). The process of joining the European Union is designed to create economic growth,
one of the primary reasons states wish to join, but in the process, the states are also forced to
adopt policies that construct the social development Mehrotra and Jolly discuss.
As noted before, in terms of trade and development, economic growth is the primary
factor to keep in mind. However, the European Union uses characteristics such as democracy,
anti-corruption, equality, etc. to gauge development, as they are part of its founding values. Since
the EU holds these standards so dearly, they obviously have a deeper meaning for the Union
which is constantly trying to develop through improvement. Petrakos links the importance of the
Stabilization and Association Process to trade and development by stating, “the policies of
European integration do not have only economic importance, because in the long run, they also
contribute to peaceful coexistence and cooperation among the peoples of Europe,” which is a
proper summation of necessities for development by the terms of the European Union liberal
policies of interdependence (2002, 7).
3.1 Capitalism and Dependency Theory
The liberalized practice of free trade is also discussed in most of the literature as having
deep roots in capitalism. Levy and Claude (2011, 32) point out that many developing countries
were slow to accept liberalizing principles in their trade policies because of their attraction to
Marxist-inspired, socialist state-controlled economies. Many states who frowned upon the

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concepts of free trade considered dependency theory in response to being encouraged to
liberalize trade. Dependency theory states that social and economic maldevelopment is caused by
external factors, most notably, the power developed states hold over underdeveloped states
(Lamy et al.: 2013, 111).
Levy and Claude discuss how Raul Prebisch contradicted the teachings of David Ricardo
and Adam Smith by saying that the liberalization of markets by opening up to free trade would
not lead to specialization, and therefore economic growth would not succeed (2011, 32).
Mercantilist protection policies were implemented by introducing “import substitution” and
subsidies for new industries. These policies, however, did not trigger economic growth, but
rather, competition for government resources, which led to corruption. Additionally, protectionist
policies kept the developing world shut off to foreign investment, technology, and knowledge
(Levy and Claude: 2013, 33-35).
However, the experiences of several countries in East Asia during the 1960s created new
ideas about trade and development. The East Asian governments decided to adopt and implement
policies that promoted export and then gradually opened their markets to foreign investments and
imports, which would create competition for domestic firms (Levy and Claude: 2011, 34). This
practice became known as “outward orientation.” Chatterji (1988, 138) states, “Outward
orientation coupled with minimal government interference will stimulate efficiency within firms
and lead to efficient allocation of resources between firms.” He goes on to state that the exposure
to foreign trade and investment will increase technology transfer, and therefore enhance
productivity. By liberalizing trade practices, there’s an increased access to technology that can
behave in a cyclical manner and advance economic growth further.

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3.1.1 Asymmetrical Trade and Dependency
There is also a general consensus that the relationship between the European Union and
the ascending hopefuls of the Western Balkans is one that mirrors a so-called “North-South”
relationship, otherwise characterized as an “East-West interaction” (Petrakos: 2002, 8). This
brings in discussions and considerations of dependency theory and asymmetrical trade.
Dependency theory, as noted above, is the idea that practices involving economics and trade over
time have come to benefit certain states known as the core while the efforts or resources of the
periphery are exploited in order to do so. Applied to Balkan trade, we can see this with the very
asymmetrical trade patterns between the modern Balkan states and the European Union as well
as with former Yugoslavia and the European Economic Community.
Petrakos describes the West-East relationship as “inter-industry” asymmetry. In this
interaction, he points out that Western Europe specializes in industries which are typically
associated as more developed in terms of economic growth such as technology, knowledge, and
capital. Central and Eastern Europe, on the other hand, specialize in raw material and labor
intensive industries (2002, 8). Additionally, asymmetry exists in the trade relationships between
the EU and the Western Balkans. Although the European Union has begun accepting trade with
the Balkans, the EU’s trade partners have not necessarily also accepted the Balkans as their trade
partners (Montanari: 2005, 63).
3.2 A Commentary on the Fall of Communism: Differences in Literature
It is important to note that there is a stark difference in trade and development literature
before and after the Communist collapse. Earlier literature (Sydow: 1968; Chatterji: 1988) had
debates about the effectiveness of trade in developing a state’s economy. However, after the fall
of Communism, the Washington Consensus largely spread, and current literature (Levy and

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Claude: 2011; Liargovas and Skandalis: 2011; Montanari: 2005; Petrakos: 2002) speaks of
liberalization as the orthodoxy. By the large, global institutions such as the IMF and World Bank
supporting the ideas behind the Washington Consensus and implementing them through
practices such as the Structural Adjustment Programs, trade liberalization has become accepted
as the norm.
Many scholars of socialist economies agreed that foreign trade was a “relatively
independent, ultrastable subsystem of the national economy,” although it was warned that it must
still be thought of as a component of the national economy as a whole (Sydow: 1968, 119).
Socialist economies, such as Yugoslavia’s, were very much command economies that still
required planning of international trade through the Council for Mutual Economic Assistance
(CMEA or Comecon), and dependence on planned economies such as the USSR’s was
detrimental to foreign trade. At the end of the Cold War, when the USSR and communism
disappeared, the ideas around trade and development obviously changed.
For instance, in Sydow’s, “On Macroeconomic Forecasting of Foreign Trade
Development in the Socialist Economy,” he subscribes to the basic economic theories that all
trade, including foreign trade, depends on the basis of demand (1968, 123). He then goes on to
say that the dependence of imports and exports must be considered as a function of national
income development, meaning that “the entire growth of foreign trade become[s] dependent on
overall economic effectiveness” (124). The nature of this relationship, where not only imports,
but also exports are dependent on domestic economic growth is characteristic of the command
economy.
The nature of liberalized trade in post-Cold War Europe is extremely contrary to the
concept of trade being a dependent variable to economic growth. Instead of depending on

15. Bayens 14
economic growth determining whether or not imports can be afforded, the liberalization of trade,
where exports become the independent variable and economic growth the dependent, represents
the polar opposites of the ideas. The reversal of roles between these items shows that the
ideologies of socialist and post-Cold War era surrounding trade and development is quite
different and the orthodoxy of literature after the drastically altering event shifted.
3.3 Stability in Interregional and Intraregional Liberalization
The Balkan experience with trade and development is not as successful as with the
Central and Eastern European countries (CEECs) or Bulgaria and Romania. Authors such as
Montanari claim this is due to a range of problems in the area at the time of the successfully
integrated countries accession (2005, 61). Reasons include that trade within the European Union
as well as intraregionally was very limited. This stems from the instability present in the region
that was not conducive to development. Trade relationships did not develop, as investors and
other states were wary about investments and trade with unstable countries. Additionally, as a
result of the wars and relations that had formed the character of the Balkans, the states were also
subjected to sanctions. Also, the goods that were being produced in the Balkans were not up to
the standards of the European Union’s strict guidelines. This is likely due to the fact that the
industrial technology in the Balkans was not as advanced as that of the industries’ in the
European Union.
In regards to stimulating development and trade in the Balkans, the literature also
considers processes of liberalization through enlargement and spreading the trade policies of the
European Union and their principles as a promising method. This concept of spreading
liberalization is supported by the demand for immediate liberalization of trade with the Balkans
and the European Union (Gligorov, Kaldor, and Tsoukalis 1999). This argument states that by

16. Bayens 15
granting tariff-free access to industrial imports, which would likely encourage liberalization, free
trade would be complete in just a few years (1999, 32). Steil and Woodward (1999) also had
ideas that the European Union should create a customs union with the Balkans followed by an
enlargement of the European Economic Area that would include the region. These suggestions of
trade liberalization initiated by the European Union as the knight in shining armor were
supported by a strategy paper published by the Word Bank (Montanari, 2000).
In the study, the World Bank recommended a two-step process for quickening the pace of
trade liberalization between the EU and the Balkans. First, the EU was to negotiate bilateral trade
agreements that would set the foundations of trade liberalization among the states. Secondly, the
European Union was to begin a free trade area with the Balkan states. By doing so, Montanari
(2005) claims, this would speed up the process of integration (63).
An important feature of the Stabilization and Association Process that comes up in the
literature is that intraregional trade is vital. Much of the literature (Montanari: 2005; Petrakos:
2002; Skayannis and Skyrgiannis: 2002) mentions how this is beneficial for several reasons. The
first being that it builds cooperation and trust among the Balkans, which is needed after the
Yugoslav Wars in the 1990s when ethnic and national feuds arose. In this sense, interregional
trade liberalization builds trust and cooperation between the countries. Interregional trade also
helps develop the economy in several ways. First, by liberalizing trade through the process of the
Balkans opening markets to one another, each state is increasing the chances of building revenue
due to an increase in trade partners. Secondly, by institutionalizing liberal practices such as
decreasing or abolishing tariffs or opening the borders to more trade, competition is introduced
to the market (Montanari: 2005, 64).

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3.4 Foreign Direct Investment
The relationship between trade and development is interesting is for the fact that it is for
its cyclic nature. This type of relationship is characterized by the fact that when economic growth
characterizing development is obtained, revenue can be invested in programs such as trade to
improve the current institutions in place. In the literature on trade liberalization and development
of the Balkans, this principle is discussed at length in the form of foreign direct investment
(FDI). When capital from FDI enters a state, the economy may expand. It also has the capitalist
principles of liberalization that allow for increased competition.
Foreign Direct Investment has special relationships with other characteristics of trade and
development, which uniquely describes the association between the Western Balkans and the
European Union in terms of stabilization and accession. Liargovas and Skandalis (2012) find that
there is a positive relationship between inflow of foreign direct investment and trade openness.
However, with the spirit of a holistic approach using the Comprehensive Framework
Development, they also mention that there are other factors such as stability in politics and
exchange rates as well as market size (329). These are all issues that are important in the
Stabilization and Association Process literature outlining the European Union’s goals for the
region due to the fact that they compose of the underlying nature of the EU. The importance of
foreign direct investment’s role in economic growth and development can be seen in its effects
on improved technology, knowledge, and corporate governance (Kaminski: 2001, 25-26).
3.4.1 Stabilizing Effects of Foreign Direct Investment
The tensions that caused the wars of the 1990s are often pointed to as a cause of the lack
of development in the Western Balkans as well as a reason for the absence of expansive foreign
direct investment. As expected, the wars pushed investors away from devoting capital in the

18. Bayens 17
region due to the hostilities in the 1990s. This is very much unlike the experiences of the Central
and Eastern European countries who had an increase of foreign direct investment at the end of
the Cold War. For instance, by 1997, the Central and Eastern European countries, which had
peaceful intraregional relations at the time, had access to the European Union’s Common Market
without duties (Kaminski:2001, 27). During the period between 1990 and 1997, when hostilities
were still being waged in the Balkan states, Foreign Direct Investment in the transitional
economies of central and eastern European countries amounted to USD 49 billion, which was
seventy-seven percent of the total amount of FDI that was received by all transition economies
(USD 64 billion) (Kaminski: 2001, 29).
Kaminski attributes the large amount of foreign direct investment channeled to the
transitioning economies of Central and Eastern European countries to the fact that there was a
large pool of skilled and unskilled labor as well as large deposits of nonrenewable resources in
some countries such as the Balkans (2001, 25). Using Western Balkans and Central Eastern
European states as a comparison is still useful, though, for two reasons. First, the Balkans are
geographically important for the European Union. Secondly, the post-socialist economies of the
former Yugoslavia had the same characteristics which Kaminski credits the foreign direct
investment growth of the Central and Eastern European countries with.
Interregional distrust could be attributed to the lack of similar models of socialism
(Skayannis and Skyrgiannis: 2005, 34). Slaveski and Nedanovski find that increase of foreign
direct investment is closely linked to increased revenue from bilateral trade. The authors point
out that an increase of stability and accession to the EU would help attract FDI inflow (2002,
86). It is crucial according to Petrakos that the neighboring countries of the western Balkan

19. Bayens 18
region must cooperate in trade in order to compete with the inter-industry competition they face
from countries of Western Europe in the EU.
Skayannis and Skyrgiannis point out that the purpose of a road is to serve as a tool that
creates change within an economy, attracting industrial relocation, population movement, and
attraction of investment (2002, 44). The authors then go on to warn that as barriers are removed,
and shipping goods is made more convenient, it is possible that the “stronger end,” the states
who have better transportation and policies, will “absorb” the “weaker,” states who do not have
advanced transportation infrastructure that support trade (2002, 46). This becomes worrisome for
regional development and accession. Not only does trade suffer, affecting economic growth and
development in the “weaker” countries, but it also fuels the distrust and disintegration which so
much literature has been concerned about in the Balkans since the dissolution of the Social
Federal Republic of Yugoslavia.
3.5 Geography
The geography of the western Balkan region is a benefit for the European Union, but it is
also a hurdle. “Macrogeography,” Petrakos states, “determines the cost of transportation and
communication, and this, the ease and potential access of goods, people, and services to large
markets” (2002, 18). In the following section on transportation, it is clearer how these issues of
geography play into the hurdles of development in the western Balkans. When discussing the
role of geography in trade and development as a catalyst of accession to the European Union, the
Kaminski (2001) utilizes the Central and Eastern European countries once again as a regional
variable to compare against the Balkans. Unlike the Balkans, the Central European countries
have a common border with the more developed, Western EU member states which are also part
of the European Union. This is a factor many authors like to contribute to the fact that the

20. Bayens 19
Central and Eastern European countries joined the European Union much more quickly than the
states of the western Balkans.
By extending its borders to include the Balkans, the European Union is achieving its
goals of expansion. This opens up more access to more diverse products, and with the
application of the liberalized principles enshrined by the European Union, the goods will be at a
much affordable price once acceding states are part of the Common Market.
3.6 Transport
As a principle of basic economics, the lower the production price, including shipping, the
greater a profit that can be made in the successful sale of a product. The very nature of a cross-
continental free trade area means that high transportation costs are involved. Montanari points
out that trade between two parties will increase with the “economic size” of one another, which
can be determined by GDP and the size of population (2005, 69). At the same time, the
likelihood of trade will decrease as distance increases between the two parties’ geographic
locations caused by the necessary rise in costs to transport the good. The lack of infrastructure in
the region also has been pointed to as a potential drawback of development, as there is not a
significant, proper amount of transportation networks.
The history of the Balkans has been particularly difficult on the infrastructure of the
region. First, the policies of the socialist state did not account for the funds for competitive land
transport networks and services. Skayannis and Skyrgiannis account this for the fact that the
principles of socialism were not conducive to interregional nor domestic mobility (2002, 33-34).
Secondly, the wars of the 1990s in the region left the infrastructure in dilapidation. The Western
Balkans failed to improve the transport conditions because they were preoccupied with war, and

21. Bayens 20
the northern and eastern parts of the Balkans were not able to invest enough capital to improve
conditions very much (Skayannis and Skyrgiannis: 2002, 33).
It is also important to note that land transportation is not adequate enough to meet the
investors of Western Europe’s needs (Skayannis and Skyrgiannis: 200, 41). This means that the
European Union’s cohesive goals of connecting the continent cannot be achieved as smoothly as
wished. In order to draw foreign direct investment into the Balkans to promote trade and
development, forming a cohesive transportation network to smoothly ship goods is inherently
necessary. However, Skayannis and Skyrgiannis point out threat the lack of cohesion is due to
the different development plans (2002, 41). In order to represent the spirit of the European Union
as well as the major overarching goal of the Stabilization and Association Process, the states of
the Western Balkans must come to better terms of communication and work in unison.
As noted before, geography of the Western Balkans has a major function in the actions of
trade and development. Also keeping the principle in mind that the amount of trade will decrease
despite the increase of liberalized open trade, due to the variable of increased distance, the
principles of the gravity model, enhanced transport networks that could ultimately make
transportation costs lower is crucial. It is not the concept of total distance in the gravity model
that matters, but the factors behind what makes distance important: convenience and ease and
ultimate transportation costs for the overall shipment.
Trade liberalization can only be useful if goods can be shipped efficiently, otherwise
firms will look at other states to invest with, and states will not be concerned with western
Balkan goods due to the fact that the products are costly to receive. Policies of liberalization are
only as useful as the institutions supporting trade and development.

22. Bayens 21
4. Methodology
In the midst of the current Greek crisis, it is suitable to ask if joining the European Union
is a profitable option for spurring economic growth. By considering the relationship between a
hopeful acceding state which is hoping to increase market access through integration and the
European Union, it becomes clear that the acceding state is giving up a fraction of sovereignty,
which raises two key questions. First, if membership will drastically harm a state’s sovereignty,
and secondly, whether or not membership will be beneficial. In order to assess if membership to
the European Union is advantageous to the acceding countries, there are three questions to
consider: (1) Does accessing the European Union’s common market through membership
actually enhance a state’s economic growth through trade? (2) How realistic is the Stabilization
and Association Process for the potential and candidate countries to create and adopt new
policies and institutions that will carry out the goals of the Stabilization and Association
Agreements? (3) Is trade liberalization, the principle of trade found in the Stabilization and
Association Process, the ultimate form of trade policy that will develop a state?
To assess the success of trade by becoming a member of the European Union, the growth
in two groups of countries’ trade will be studied quantitatively by using GDP of imports and
exports since their ascendance to the European Union. The first group, is the Central and Eastern
European countries which ascended in 2004: the Czech Republic, Hungary, Poland, and
Slovakia. These states have a similar, yet differing experience from the Balkans, which will shed
light on the effectiveness of joining the European Union. The second group of countries are the
ones that share a closer experience to the Balkans, Bulgaria, Romania, and Croatia, which are
geographically close to the Western Balkans and share a more common experience. Additionally,

23. Bayens 22
these are the three newest states that have joined the European Union and can give an idea of
what new membership is like.
In order to assess if the Stabilization and Association Process is realistic for potential and
candidate countries in the Balkans to achieve, a qualitative study of the Stabilization and
Association Agreements will be taken. This will give an idea of the expectations the European
Union had for the potential and candidate countries. In order to assess the reality of Balkan
capability to pursue and achieve these expectations, an analysis of the 2015 annual progress
reports will give an idea of how far the potential and candidate countries have come in the
process of stabilizing and accession to the European Union. The annual reports are organized by
subjects found in the Stabilization and Association Agreements. The success of each topic is
described with terms such as “moderately good,” and, “advanced progress” to depict how much
improvement has been made. There are possible fallacies in this portion of the study due to the
nature of the research approach and the question. First, because it is qualitative, the study does
run the risk of having biased findings depending on interpretations of the information found.
Secondly, the reports being used to analyze the successes of the Stabilization and Association
Process are written and submitted to the European Union by the states individually. This means
that there is a chance that states may present a better image of themselves in order acceding to
the EU more quickly, these states may give a false portrayal of their progress. Thirdly, the terms
used to code the success and progress of each country is a loose definition. Therefore, even if a
country is being honest about their progress, it is still questionable what it actually means in
relative terms to other topics of accession and other countries’ progress. An added benefit,
though, is being able to understand how countries are viewing their experiences with
stabilization, accession and Europeanization.

24. Bayens 23
Finally, to assess the importance of trade liberalizing practices that are present in the
Stabilization and Association Process, there will also be a comparison of countries with
liberalized trade policies while examining economic growth rates measured by imports and
exports in GDP. The Open Market Index, resulting from a study conducted by the International
Chamber of Commerce, will serve as the basis of data for the variable measuring trade
liberalization. Comparing this measurement against GDP, the variable representing economic
growth, will give an indication of trade liberalization and economic growth’s relationship.
Unfortunately, the International Chamber of Commerce did not have data for the Western Balkan
countries, which would have been optimal for the study. However, there was information for
seventy-six countries. Two of the countries had to be removed, as the World Bank did not report
numbers for these countries’ GDP per capita. Despite this challenge, the data that is available
will give an idea of the more generalized relationships between trade liberalization and economic
growth overall due to the fact that the countries presented are spread across the world. In order to
give this part of the study more relevance to the European Union, countries will be color coded
by region to give an idea of what the extent of trade liberalization values in Europe and their
effects on the economy.
5. Researchand Findings
5.1 Does Trade Liberalization affect Economic Growth?
The graphs in appendices 1-13 show the relationship between GDP and variables of
trade. GDP was chosen as a variable which would represent the overall economic growth when
being viewed on a line graph over time. Imports and exports were chosen in order to represent
the amount of trade that occurred during the same time. To run the test, it was necessary to
choose variables that represented the amounts of trade measured in the same, common unit of

25. Bayens 24
measurement. Unfortunately, the only variables the World Bank dataset has to measure both
GDP and the variables of trade which use a common unit are ones measured in “current US$, so”
the options for data were limited.
The data results, however, found in appendices 1-13, for the first question offer an
interesting point simply by first sight. When looking at the graphs, the exports and imports,
specifically, have a trend to follow the slopes of GDP. This proves, that trade does have an effect
on state’s overall GDP. In other words, trade’s role as an agent of economic growth is proven in
these relationships.
It is noteworthy, though, to notice that the lines representing imports are more likely to
conform to the lines representing GDP. Referring back to Sydow’s (1968) argument, he states
that import volume is a better indicator of trade than export volume. Imports, he says, are
dependent on revenue, in a socialist economy the volume of imports a country purchases is
dependent on GDP (128). However, as noted before, trade liberalization often makes the point
that revenue is instead, dependent on trade, most notably, exports. These graphs challenge this
concept and give support to Sydow’s theory. This may be due to the fact that the economies are
still in transition, as they still hold some of the characteristics of planned and command
economies.
Trade deficits, where imports are greater than exports, can be visualized by the gap
between the lines representing the two variables. If the literature holds true, the trade
liberalization policies of capitalist countries like those in the European Union are characterized
by greater exports to imports in trade. As the states in the region conform to the Stabilization
and Association Process, then, this gap should actually shrink because they are adopting more
liberalized policies.

26. Bayens 25
Another possible reason for this phenomenon is asymmetry, which is characteristic of the
“West-East” relationship between the Balkans and the member states of the European Union.
The less developed countries of the Western Balkans are creating a trade deficit by importing
more western goods than they have exported. By applying dependency theory, the states of the
Western Balkans are serving as a peripheral market for goods from western Europe to be sold.
However, in typical asymmetric relationships, there is no reciprocaty and not as many goods are
being exported from the Balkans to the EU as there are imports being sent to the Balkans.
Overall, though, all countries register economic growth. This shows that the states which
are active in integration and Europeanization are experiencing economic growth due to trade
revenues. An important factor to remember is that the graphs shown do not necessarily represent
factors of trade such as possession of natural resources. Instead, the charts are used in order to
shed light on the relationships between what trade is being conducted at a certain point in time
where liberalization policies may be adopted or other events that affect the trade and economics
of the state may occur.
5.1.1 Trade Liberalization and Economic Growth for the Western Balkans
Appendices 1-6 represent the economic growth of the Western Balkan countries which
correlate with tendencies of trade liberalization. These states are the ones which are either
potential or candidate countries to the European Union currently. By measuring the differences
in GDP overtime, it is possible to see how the different events in the states’ history have affected
the trade and economic growth. More specifically, with a better analysis of the events in each
country’s specific transitions to new economies, this will give a better idea of how those events
affected trade and economic growth. Additionally, with an analysis of the actions towards
achieving acquis procedures as stipulated and outlined in the Stabilization and Association

27. Bayens 26
Agreements, the slopes would increase as the objectives were accomplished. This is if the
Stabilization and Association Process was successful in establishing economic growth in its trade
liberalization policies that reflect the European values.
5.1.2 Trade Liberalization and Economic Growth in the Central and Eastern
European Countries
In the next group of states, the Central and Eastern European countries, which are a small
subset of countries that joined the European Union in 2004, a steady growth is visible for all of
the countries from post-communism up until 2008, which would more than likely signify the
global financial crisis. This decrease is present in all of the states in appendices 1-13. The slope
of these countries’ GDP and trade related variables also makes an interesting change around the
year 2000. This is more than likely due to the fact that trade liberalization practices to prompt
integration began in these countries as early as 1999, as stated above.
The gap between exports and imports for these countries is also noteworthy. The gap is
not nearly the size of its counterparts in the Balkan grouping of charts. Typically, for most of the
Central and Eastern European countries, the values for imports and exports were almost
identical, creating an overlapping line. There are a few instances where the gap is larger in some
states than others, but typically the values are almost equal. This signifies that the Central and
Eastern European countries are less likely to have asymmetrical trade and trade deficits as drastic
as the Western Balkan states. It is also worth noting that the largest gaps occur around 2008, the
year of the financial crisis. Additionally, the gap tends to increase
The decreased noticeability of the gap between imports and exports compared to the
Western Balkan states could signify the quality of transition from a planned economy to that of
an open economy. If we regard Sydow’s theory that planned and command economies have a

28. Bayens 27
predictable nature of purchasing imports due to revenue success, whereas open economies
revenue success depends on their ability to export goods, this idea holds true. It is well known
that the economies of the Central and Eastern European countries had a much easier time of
integrating to the standards of the acquis, and the literature supports that trade liberalization
practices such as bilateral trade with the European Union were better with this set of countries.
Also in relation to the success of liberalization policies, the values are represented to give the
effect that the trade variables are much more closely incorporated with the GDP of the country.
The peaks and valleys of the graphs are much clearer in relation and follow slope more closely.
Interestingly, the gap between the import and export values tends to increase as time goes
on. This may be a concerning issue involving trade deficits and asymmetry as well as their
relationships to trade liberalization. If the gap is a definite sign of asymmetry and deficits, this
signifies that these countries with this trend are not experiencing the expected benefits of
accession to the European Union or trade liberalization.
5.1.3 Trade Liberalization and Economic Growth in the Acceded Balkan States
The third set of countries, Bulgaria, Romania, and Croatia, represent the countries which
do not necessarily have the same experience as the Western Balkans although, they should due to
geographic proximity. Croatia was the only state among this group that was part of the former
Socialist Republic of Yugoslavia. Bulgaria was also the only one of this group that had a
communist experience rather than a socialist one. Bulgaria and Romania both ascended to the
European Union in 2007, while Croatia is the newest member to join the European family as of
2013.
Despite shared characteristics such as geography and command and planned economic
experiences, something occurred with these three countries that made the adoption of acquis and

29. Bayens 28
therefore integration to the European Union much easier. This is evidenced by the lines on the
graphs. The values that represent trade follow the values that represent overall economic growth
more closely, and look more like the Central and Eastern European group of charts than those
from the Western Balkans group. This would lead one to conclude that the adoption of trade
liberalization and its effects on economic growth were more successfully adopted and applied to
the economies of these states than the other Balkan states which have candidate and potential
member status.
5.2 The success of the Stabilization and Association Process in the Balkans
This section analyzes the European Union’s expectations of the Western Balkans when
signing the Stabilization and Association Agreements. The requirements which represent the
underlying values of the European Union and principles of “Europeanization,” are presented in
the Stabilization and Association Agreements. By analyzing the 2015 reports from the potential
and candidate countries, the progress in achieving trade liberalization and accession requirements
stated in the acquis communautaire will be assessed on a country by country basis. Cross
referencing the information from these two types of documents will give an idea of how each
country is working towards achieving acquis, their progress, and any additional issues that may
be included.
5.2.1 Inter- and Intra-Regional Relations and Cooperation
The language in the Stabilization and Association Agreements reflects the behavior and
ideas of the European Union’s principles of liberalization-in trade and general theory. The
Stabilization and Association Agreements refer to the European Union member states as “the
Community,” and discuss the relationships it has with the signing state positively in union and
equality. Because the relationships between these parties must be positive in order for trade

30. Bayens 29
liberalization theory and healthy trade relationships to succeed, there is a large emphasis on
developing positive inter- and intraregional relationships with Member states of the EU, other
states undergoing the Stabilization and Association Process, potential, and neighboring countries.
This is extremely crucial for the stabilization portion of the process as well as for the
Enlargement Policy of the EU due to the previously strained relationships that emerged from the
Balkan wars of the 1990s.
To underline the importance of the necessity of cooperation, the agreements all have
clauses discussing cooperation. Because cooperation is commanded for a multitude of states in
which the European Union has relationships with, the definitions of cooperation are spelled out
very concisely. The first type of cooperation is with the European Union. The article calling for
cooperation with the EU, or the Community, as it is referred to in the agreements states: “The
Community and [signing state] shall establish a close cooperation aimed at contributing to the
development and growth potential of [signing state]. Such cooperation shall strengthen the
existing economic links on the wides possible foundation, to the benefit of both parties”
(Stabilisation and Association Agreement Albania: 2006, Article 86). This statement gives the
EU authority in the accession process. Also, it orders for the submission of sovereignty in
exchange for accession while simultaneously providing purpose for the rest of the document.
The success of this requirement is conveyed in the overall reports. Because the states are
taking the effort to take the requirements seriously, this portion of the Stabilization and
Association Process is seen as effective. Although there are points in which the reports show
regression in their goals, typically they progress and can claim advanced degrees of alignment to
the acquis communautaire. Since cooperation is the most vital part of the European Union’s
goals and the overall success of liberalization lies in cooperation between two or more parties,

31. Bayens 30
this step is critical for states to complete in order to access the trade markets and increase
revenue that can be applied to the infrastructural and social aspects of development.
This portion of the Stabilization and Association Agreements also typically commands
the states to maintain and create bilateral agreements with other countries in the area that will
potentially become member states. This must be done in order to create and sustain good
relationships with other countries that are also associated with the EU during the transition
process. The Stabilization and Association Agreements encourage compromises of bilateral
agreements between acceding hopefuls and other states. Continued involvement in free trade
areas such as the Central European Free Trade Area (CEFTA) is also encouraged (Stabilisation
and Association Agreement Macedonia, Serbia, Kosovo: 2001, 2008, 2015, Articles 14, 17, 16)
In preparation of joining the EU customs union and FTA, the agreements also order that a
bilateral agreement be set up between the Community and the signatories for a certain amount of
years. Between he six states, the amount of time each agreement should last is anywhere between
a maximum of five to ten years. In the amount of time that the bilateral agreements are open
between the EU and the signatory, the individual state will be able to enjoy the benefits of
accessing the European Common Market before full accession occurs.
For all of the Western Balkans that have potential or candidate status, the reports
conclude that the European Union is the largest trade partner. As seen with the graphs in
Appendix 7.1, there still is a trade deficit between Western Europe and the Balkan states. The
deficit is a product of the “West-East” phenomenon of dependency theory and is noted in all of
the reports. One could argue that because this deficit does exist, joining the European Union
may not be advantageous for economic growth because the states are still not being treated as
equally as the European Union would show. However, there is proof that since the years of

32. Bayens 31
adopting the Stabilization and Association Agreements signatory states have in fact experienced
economic growth from trade. The issue is that the states are still in transition and must adapt their
trade, economic policy, and markets.
5.2.2 Transitional Policies of Transitional States Attempting Accession
The states of the Western Balkan range from having a “good level of preparation”
(Stabilisation and Association Agreement Macedonia: 2006, Article 25) to being in the “early
stage of developing a functioning market economy” (Stabilisation and Association Agreement
Bosnia and Herzegovina, Kosovo: 2008, 2015; 29, 30). A market economy, the Stabilization and
Association Agreements claim, is the crucial factor of adopting trade liberalization. There is also
a correlation between the date of signing the Stabilization and Association Agreements and how
far the development of the market economies are in their respective state. Thus, the longer that a
state has been in transition under the Stabilization and Association Process, the more likely they
are to having a stronger functioning market economy and the trade liberalization procedures
found necessary for accession to the EU. This also shows that the transitioning markets take time
for liberalization to set in. After explaining the level of success a state has had in developing a
functioning market economy, the reports explain what steps can be taken to make more progress
over the next year and into the future.
The suggestions for creating a more liberal economy that will be able to join the
European Union often lies in the privatization of public enterprises, strengthening the rule of law,
increasing education, and invest in transportation infrastructure in order to promote foreign direct
investment. There are drastic differences between each country and their strategies for
developing a stronger market economy because the rules of the acquis communautaire are so
varied.

33. Bayens 32
5.2.2.1 Competition and Dumping
First, because the European Union values trade liberalization, healthy competition is also
strived for in all of the domestic economies. This does become an issue, though, when
cooperation is also valued in the Union. Each country has an interest in implementing subsidies
and aid to certain sectors in order to promote their own products abroad. Unfortunately, this
harms markets domestically and internationally for other economies. Therefore, in order to
protect economic interests and competition, the European Union has certain laws about dumping,
which is the practice of selling a good abroad for less than its original worth or below the cost of
production. If the practice of dumping does occur, either party of the Stabilization and
Association Process can report the act to the World Trade Organization (WTO). In order to show
progress in stopping unfair competition practices that are illegal under the Stabilization and
Association Agreements, Western Balkan states develop State Aid Commissions (SACs). These
commissions monitor the levels and dispersion of aid states give to private and public industries
in order to create transparency. Many of the states all agree that there are measures they could
take in order to strengthen their SAC that would bring about a greater amount of trade
liberalization and reduce threats to inter- and intraregional trade.
5.2.2.2 Investment Promotion and Protection
Another reason to create a greater deal of liberalization in the economies of the Western
Balkans is to attract investment. Paradoxically, by liberalizing trade in a way where competition
is set more by the laws of supply and demand, industry will grow by appealing to other
businesses to enter their market, which will create domestic revenue. All states’ agreements and
reports claimed that there was a greater need to promote and protect investments. All of the
reports show that there is an increase in foreign direct investment over time since adopting the

34. Bayens 33
Stabilization and Association Process. The investments in businesses in these countries creates
more revenue, which can then be applied to development programs.
5.2.2.3 Sectoral Revitalization
Other strategies the states of the Western Balkans in transition economies with to
implement is industrial diversification, modernization, and restructuring. Many of the states in
the Western Balkans such as Serbia have a large informal sector (Annual Report Serbia: 2015,
30). Another sectoral issue is the micro-enterprises, which can be seem in countries such as
Macedonia. For instance, in Macedonia, small businesses make up 98% of companies and are
responsible for employing 80% of all people (Annual Report Macedonia: 2015, 30).
Diversification in industries, especially ones that will have larger output will make the
economies of the Western Balkans more competitive while also staying within the framework set
out by the acquis communautaire (Stabilization and Association Agreement Kosovo: 2015,
Article 99).
5.2.2.4 Transportation
The Stabilization and Association Agreements all state that transportation is also key to
accession to the EU, for reasons of interconnectivity to the rest of the continent as well as the
ability to move goods that are being traded. Serbia’s annual report, which claims to be
“moderately prepared” (2015: 41) in the area of transportation stated that by improving
dilapidated infrastructure from the conflicts that happened in the 1990s, private and public
investment would increase (29). Interestingly, the Stabilization and Association Agreements
discuss transportation in a way largely centered on trade. However, in the annual reports, there is
a slight shift. Although many realize that there is an advantage in increasing and improving trade
through developing transportation infrastructure, more modern issues have arisen since the

35. Bayens 34
signing of the agreements. For instance, Macedonia’s annual report discusses meeting acquis
communautaire road safety requirements (2015: 43). Other reports, such as Albania’s, mentions
keeping a closer check on drug transportation (2015: 93). Although there is a shift on focus, the
states do realize that it is important to continue developing infrastructure to support trade within
countries. By doing so, the states are not only increasing revenue, but complying with other
European Union standards which might have not been an original focus.
5.2.2.5 Free Movement of Goods and Duties
The most attractive part of joining the European Union, however is for the abolishment of
tariffs due to strenuous trade liberalization laws. This makes it cheaper for producers to sell their
goods abroad because they do not have to impose a tax on the consumer. The products therefore
enter a country without a duty. For the acceding states to fully benefit from this, first, they must
also adopt their laws regarding their tariffs and the movement of goods. As a reciprocity
principle, this means that in return for not receiving a tax on their goods, a state must not impose
a tax on another state’s goods. This underlines the importance of cooperation of the European
Union and the interdependence of liberalization. In all of the Stabilization and Association
Agreements, there are clauses about reducing and/or abolishing duties on goods. There are also
clauses about abolishing the quantitative restrictions of imports a state might place on a certain
good. All of the states besides Kosovo are “moderately prepared” in the free movement of goods.
Kosovo, the most recent to sign a Stabilization and Association Agreement, is in the “early
stage” of preparedness for the free movement of goods. By reciprocating the practice of
abolishing customs, and adopting new liberalized practices, the acceding states are more likely to
join the European Union more quickly. Only then, will they fully be able to enjoy the full
benefits of being a trade member of the European Union that could increase market access while

36. Bayens 35
simultaneously decreasing trade costs. Increasing market capacity, then in return, would increase
the prospects for revenue.
Overall, by analyzing the progress of the Western Balkan states commitment to achieving
acquis communautaire through their progress, it is clear that there is quite a bit of work to be
done in terms of aligning policies to those of EU accession requirements. However, many of the
states seem to be making a great deal of progress. It is also important to note that typically,
Macedonia would be more prepared in the fields of accession. This is more than likely due to
being the first of the Western Balkans to sign a Stabilization and Association Process. However,
it is also important to note that Croatia signed their agreement after Macedonia and has already
joined the European Union. This means that some states were also more ready to accede, or
perhaps, were more “European” than others at the time of signing the Stabilization and
Association Agreements.
5.3 Open Markets and Economic Growth
After plotting the data that measures economic growth and market openness-an indicator
of trade liberalization-an interesting relationship emerges as seen in Appendix 14. There is a
positive correlation between the two variables, whereas trade openness increases, so does GDP.
This reinforces the concept that practices of trade liberalization such as trade openness do have
an effect on economic growth, which can be used to further development.
However, the positive correlation is not the most interesting portion of the relationship. In
fact, the graphing creates an exponential function. This indicates that as the values for open
market increase there comes a point where a limit begins to take place. As OMI score is
measured on the x-axis, by analyzing where the limit intersects the axis, we are able to see where
the optimal level of market openness exists. This value is somewhere around 5.

37. Bayens 36
Interestingly, there is also a cluster of European countries, which are represented by the
blue dots. This existence of this cluster gives an idea of the practiced amount of market openness
by the European Union, as the majority of the countries that make up the “Europe” region are
member states. These dots that represent Europe are mostly located between 3 and 5, the
majority hovering around 4. This indicates that the European countries are not necessarily the
most developed, but that they are coming to the limit of market openness.
The outliers for the case of market openness, Singapore and Hong Kong are textbook
examples of trade liberalization. It is visible on the chart, though that these countries still do not
have the greatest GDP, though. For the outliers representing high GDP, are Luxembourg,
Switzerland, and Norway, which all have relatively high levels of market openness also. The
chart representing country values of OMI scores and GDP can be found in Appendix 15.
6. Conclusion
Based on the history and current conditions of the Western Balkans, accession to the
European Union seems to be in the best interest of the states in the region for a multitude of
reasons. It also appears that the European Union’s Expansion Policy seems inevitable to pick up
these states as members. Revisiting the idea of foregoing certain amounts of sovereignty to join
this political block, one must ask what makes membership so desirable, considering the
difficulties of accession. The promise of increasing trade potential due to the access of the
Common Market in Europe seems like a promising answer for the sovereignty conundrum.
In order to join the EU and gain their access to this market, it is crucial for potential and
candidate states to adapt to the expectations and requirements of the European Union, most
notably the trade liberalization policies. However, one must ask if these alterations will be worth
accession in the long run. By analyzing the relationships between trade, liberalization, and

38. Bayens 37
economic growth, it is clear that there is a positive relationship, proving that it would be
advantageous to join the European Union if not only for the process of adaption to more
liberalized trade policies that will create economic growth. The economic growth which is
earned through an increase in revenue, can then be applied to development programs that will
further enhance the state.
The literature shows that there are clearly still barriers to accession as well as more
liberalized, prosperous trade. Challenges include adopting European values such as non-
corruption and equality as well as more tangible features like infrastructure such as
transportation networks and foreign direct investment. Geography of the Western Balkans also
provides an interesting relationship between the hopeful states and European Union, which is
positive and negative in some aspects. These issues must be considered in order to create
stronger trade and development.
A suggestion for further study is to analyze the specific growth patterns and market
openness of the country groups: Western Balkan potential and candidate states, Central and
Eastern European states, and the EU member Balkans. This will give a clearer idea of how
important market openness is to the successful integration to the European Union. An index
following the framework of the International Chamber of Commerce’s will be needed to also
cross analyze the specifics of these regions to the entirety of the selected states in Finger’s study.
Additionally, it will be more effective to study the growth of certain institutions of social
development against economic growth. This will further cement the relationship between trade
liberalization, which has been proven to create economic growth, and development when
increased revenue is applied. It is expected that there would be some issues with this study, as
funds need to be applied properly in public finance to create effective social development. It

39. Bayens 38
would be encouraged that if this study was to be done, one would also look at the issues of
effectively applying the increase in revenue and see what challenges were in store. For the case
of the Balkans, it would be expected for issues such as corruption to be the biggest issue.

40. Bayens 39
7. Appendences
7.1 Country Accession Groups
Groups States Year of Accession
Central and
Eastern European
Countries (CEECs)
Slovakia, Czech Republic, Hungary, Poland,
Cyprus, Malta, Slovenia, Latvia, Lithuania,
Estonia
2004
Acceded Balkan
States
Bulgaria, Romania, Croatia 2007, 2013
Candidate
Countries
Albania, Montenegro, Serbia, Macedonia
(FYROM), Turkey
2025-2030?
Potential Countries Bosnia and Herzegovina, Kosovo ???

41. Bayens 40
7.1.1 Western Balkans GDP at market prices (current US$), Imports of goods and
services (current US$), Exports of goods and services (current US$)
Appendix 1: Albania
Appendix 2: Bosnia and Herzegovina

42. Bayens 41
Appendix 3: Kosovo
Appendix 4: Former Yugoslav Republic of Macedonia (FYROM)

43. Bayens 42
Appendix 5: Montenegro
Appendix 6: Serbia

44. Bayens 43
7.1.2 Central and Eastern European Countries (2004 ascending countries) GDP (at
current US$), Imports of goods and services (at current US$), Exports of goods and
services (at current US$)
Appendix 7: Czech Republic
Appendix 8: Hungary

45. Bayens 44
Appendix 9: Poland
Appendix 10: Slovak Republic

46. Bayens 45
7.1.3 Balkan EU Member States (Bulgaria, Croatia, and Romania) GDP (at current
US$), Imports of goods and services (at current US$), Exports of goods and services (at
current US$)
Appendix 10: Bulgaria
Appendix 11: Croatia

47. Bayens 46
Appendix 13: Romania

48. Bayens 47
7.2 Trade Opennness and Economic Development
Appendix 14

49. Bayens 48
Appendix 15
Country Region
OMI
Value1 GDP2
Luxembourg Europe 4.9 113726.6
Norway Europe 4.4 102832.3
Switzerland Europe 4.5 84669.3
Australia Pacific 4.3 67627.8
Sweden Europe 4.4 60283.2
Denmark Europe 4.3 59818.6
Singapore Asia 5.5 55979.8
United States
North
America 3.7 52980
Canada
North
America 4.2 52305
Ireland Europe 4.6 51814.9
The
Netherlands Europe 4.7 51425.1
Austria Europe 4.3 50557.8
Finland Europe 4.2 49492.8
Iceland Europe 4.5 47493.2
1 Finger, Michael K. 2013. Open Markets Index. International Chamber of Commerce (ICC). 2
(April).
2 “GDP Per Capita.” 2016. World Bank. http://data.worldbank.org/indicator/ny.gdp.pcap.cd
(February 17, 2016).

50. Bayens 49
Belgium Europe 4.8 46625.3
Germany Europe 4.2 46441.7
UAE MENA 4.6 42831.1
France Europe 3.8 42627.7
United
Kingdom Europe 4 42309
New Zealand Pacific 4.1 42308.2
Japan Asia 3.7 38633.7
Hong Kong Asia 5.5 38364.2
Israel MENA 3.9 36281.2
Italy Europe 3.7 35420.9
Spain Europe 3.6 29370
Cyprus Europe 4 27910.6
Korea,
Republic of Asia 3.6 25997.9
Saudi Arabia MENA 3.7 24646
Slovenia Europe 4.2 23144.1
Malta Europe 4.7 22776.2
Greece Europe 3.2 21719.2
Portugal Europe 3.6 21618.7
Czech
Republic Europe 4.2 19813.9
Estonia Europe 4.5 19155.4

51. Bayens 50
Slovakia Europe 4.4 18109.5
Uruguay Africa 2.7 16879.5
Chile
Latin
America 3.9 15741.7
Lithuania Europe 4 15692
Latvia Europe 3.9 15025.8
Russia Asia 2.8 14487.3
Argentina
Latin
America 2.5 14443.1
Poland Europe 3.8 13776.5
Kazakhstan Asia 2.9 13611.5
Hungary Europe 4.2 13585.4
Brazil
Latin
America 2.2 11711
Turkey MENA 3.4 10975.1
Malaysia Asia 3.9 10973.7
Mexico
North
America 3 10172.7
Romania Europe 3.7 9587.2
Columbia
Latin
America 3 8020
Bulgaria Europe 4.1 7656
China Asia 2.8 6991.9

52. Bayens 51
South Africa Africa 3.2 6889.8
Peru
Latin
America 3.6 6603.8
Thailand Asia 3.2 6229.2
Algeria MENA 2 5491.6
Jordan MENA 3 5200.3
Tunisia MENA 2.6 4310
Ukraine Europe 3.7 4029.7
Sri Lanka Asia 2.4 3628.3
Indonesia Asia 3 3623.5
Morocco MENA 2.6 3156.2
Egypt MENA 2.9 3104.2
Nigeria Africa 2.3 2978.8
Philippines Pacific 2.8 2787
Vietnam Asia 3.5 1908.6
Sudan Africa 1.8 1726.1
India Asia 2.5 1455.1
Pakistan MENA 2.1 1275.4
Kenya Africa 2.1 1257.2
Bangladesh Asia 1.9 954.4
Uganda Africa 2 674.3
Ethiopia Africa 1.8 503.9

53. Bayens 52
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