Foreign direct investment (FDI) remains a key link between the Western Balkans and the European Union. Recent trends, however, show differentiated responses to accession-related milestones across the region.
Serbia and North Macedonia display some features consistent with negotiation-stage patterns seen in earlier enlargements. Albania and Montenegro show different patterns. Bosnia and Herzegovina and Kosovo record increasing inflows consistent with the early stages of previous EU enlargements.
The EU remains the region’s main investor, although closer integration seems to not automatically translate into stronger or more diversified FDI. Compared with earlier CEE enlargements, accession signals in the region coincide with more varied and less pronounced investment responses.
These dynamics are visible in differences in inflow levels, sectoral composition, and sensitivity to EU-related milestones.
Uneven gains
FDI trends across the Western Balkans indicate widening differences in how economies respond to EU accession signals. Serbia—and, more recently, North Macedonia—has experienced clearer credibility effects, with inflows rising as EU integration advanced, particularly into tradable sectors.
Albania and Montenegro, by contrast, recorded higher inflows prior to obtaining candidate status or opening negotiations than in subsequent years, with investment often concentrated in real estate and financial activities. Bosnia and Herzegovina and Kosovo have seen modest or numerically significant increases following EU-related steps, though structural effects remain limited where inflows are dominated by diaspora-linked real estate rather than export-oriented investment.
For the period from 2008–13, before it achieved candidate status, FDI inflows in Albania averaged 9.1 per cent of GDP. After 2014, they averaged 7.5 per cent, easing to 6.9 per cent over 2022–24. Investment remains concentrated in finance, insurance, and real estate, with real estate representing the largest share of inflows in 2024.
In Montenegro, FDI before candidate status (2008–11), averaged 22.3 per cent of GDP, peaking at 37.3 per cent in 2009. After accession negotiations began in 2012, inflows have averaged 10.6 per cent (2012–24), reaching 7.4 per cent of GDP in 2024. Real estate, as in Albania, accounted for a significant share.
Following candidate status in 2005 FDI inflows to North Macedonia peaked at 8.8 per cent of GDP in 2007 before stabilising at around four per cent on average. Since 2022, they have increased to an average of 5.7 per cent, reaching seven per cent in 2024.
Serbia achieved candidate status in 2012 and saw FDI inflows rise steadily thereafter. Between 2014 and 2024, accession negotiations coincided with inflows increasing from 4.1 per cent (in 2024) to 7.9 per cent of GDP (in 2019). Investment continues to target manufacturing and other tradable sectors. In 2024, FDI inflows reached 5.6 per cent of GDP and fully financed the current-account deficit.
Before applying for candidate status in 2016, inflows in Bosnia and Herzegovina averaged 2.4 per cent of GDP (2008-15). From 2016 till 2024, they rose modestly to 2.9 per cent on average, reaching 3.5 per cent in 2022 (the year in which candidate status was granted) and four per cent in 2024, including a notable contribution to external-deficit financing.
FDI averaged 5.7 per cent of GDP in Kosovo from 2008 to 2021. Following its 2022 EU membership application, inflows averaged 8.3 per cent from 2022–24. In 2024, 93.5 per cent of FDI was directed to real estate—largely diaspora-driven—with financial and insurance activities also significant. Such a major concentration in these sectors indicates limited impact on export capacity.
FDI integration with the EU
The EU remains the Western Balkans’ principal source of foreign direct investment, despite gradual diversification in recent years. Across all six economies, EU countries account for the majority of FDI stocks and a substantial share of annual inflows.
Albania maintains a high level of integration with the EU, which accounted for 54.1 per cent of its FDI stock in 2024 (54.4 per cent in 2023). North Macedonia has consolidated its EU investment base, with 44 per cent of FDI inflows and 67 per cent of total FDI stock in 2024 coming from EU-27 countries.
Bosnia and Herzegovina shows similarly strong patterns, with roughly two-thirds of total FDI stock originating from EU countries. In Kosovo, EU-linked investment has deepened: the EU’s share of FDI stock increased to 43.8 per cent in 2024, up from 34.6 per cent in 2019 and 42 per cent in 2023. Inflows from Germany (19.4 per cent) and Switzerland (18.7 per cent) highlight continued reliance on diaspora-related channels.
In Serbia, EU integration remains significant: the EU accounted for 37.6 per cent of FDI inflows in 2024. At the same time, China’s share—now close to one-third of total inflows—indicates an emerging dual investment orientation. Montenegro also remains closely tied to the EU. In 2024, 28 per cent of FDI inflows originated from EU member states, ahead of inflows from Serbia, Russia, and Türkiye.
Compared with earlier enlargement rounds, today’s Western Balkans display a more muted investment response to accession milestones.
The CEE benchmark: When accession still moved markets
The enlargement of the EU in the 2000s marked a period when investors responded strongly to EU accession signals. Evidence from the new member states suggests that accession—and accompanying reforms—was associated with substantial increases in FDI, higher stocks per capita, and gains in exports and productivity. Prior research also indicates that deeper integration steps, particularly the opening of accession negotiations, were associated with larger inflows than earlier stages. Even early signals, such as the publication of accession timetables, coincided with rising investment as markets anticipated future regulatory stability and institutional convergence.
Across Bulgaria, Romania, and Croatia, EU accession steps corresponded with a broadly recognisable sequence in FDI developments. Application for membership coincided with modest increases in inflows, while candidate status reinforced this trend in Bulgaria and Romania, though not in Croatia given its higher initial levels of FDI inflows. In 1999, for example, Bulgaria’s inflows rose to six per cent of GDP—nearly triple the pre-application period average—while Romania’s reached 2.9 per cent. Croatia saw no further increase during this stage, reflecting its higher baseline and sectoral structure.
The most pronounced increases appeared during accession negotiations, however. Between 2000 and 2006, Bulgaria averaged FDI of 11 per cent of GDP (peaking at 22.9 per cent in 2006), Romania averaged five per cent (with a high of nine per cent in 2006), and Croatia maintained around 4.8 per cent during its 2005–12 negotiation period, with peaks of seven–eight per cent.
Across the Western Balkans, FDI developments associated with EU accession vary. Serbia and North Macedonia—both in the negotiation phase—display partial similarities to the negotiation-stage patterns seen in earlier enlargement cases. Albania and Montenegro, which are progressing through opening clusters and closing chapters, exhibit dynamics that differ from the earlier CEE sequence. Bosnia and Herzegovina and Kosovo, which remain at candidate and application stages respectively, show increasing trends in FDI inflows more comparable to the early stages of previous enlargements.
Accession progress and investment implications
Accession progress in the Western Balkans varies, and investors appear to reflect these differences in their assessments. Montenegro and Albania have maintained relatively steady reform trajectories. Montenegro closed four negotiation chapters in the past year and could conclude negotiations by 2026 if the current momentum continues. Albania has opened all six clusters—including the final one in November—and is advancing reforms in justice, governance, and the fight against organised crime. Such developments generally signal improving regulatory stability and clearer long-term institutional direction.
Elsewhere, reforms have proceeded more slowly. Serbia faces ongoing concerns related to corruption, accountability, and civic-space pressures. North Macedonia remains broadly aligned with EU priorities but has slowed progress in rule-of-law, administrative, and governance reforms. In Bosnia and Herzegovina, political fragmentation—particularly developments in Republika Srpska and the collapse of the ruling coalition—has constrained reform implementation. Kosovo maintains strong public support for EU integration, but post-election delays this year have affected reform timelines.
Cross-country evidence from earlier enlargements shows that improvements in institutional quality, regulatory frameworks, governance, and business freedoms were closely associated with the large FDI inflows recorded by the new member states. In these cases, much of the investment response reflected reforms undertaken before and after accession rather than formal milestones themselves.
Restoring the accession premium
The Western Balkans remain closely integrated with the European economy, although the investment dynamics associated with accession have evolved over time. The premium once observed around the opening of accession negotiations appears less evident in recent years. Serbia and North Macedonia continue to display some elements of the earlier pattern, while elsewhere investor assessments seem more influenced by domestic political developments, governance conditions, and the sectoral composition of inflows.
The European Commission’s 2025 Enlargement Package seeks to sustain momentum in the accession process. The package highlights that enlargement remains high on the EU agenda and emphasises the relevance of progress in democracy, the rule of law, and fundamental rights for both the pace of accession and the economic opportunities that follow, including strategic investment and deeper access to the Single Market.
The previous experience Bulgaria and Romania suggests that FDI peaks the year before states become full members. With the exception of Montenegro and possibly Albania, it could be several years before we find out if the same is true for the Western Balkans.
Note: FDI inflows as a share of GDP and other FDI related data are sourced from the World Bank, UNCTAD and from the European Commission’s 2025 country reports, released on November 4, 2025. as part of the Commission’s annual enlargement package.
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