Balkan Subnational Innovation Competitiveness Index
For policymakers to bolster their regional innovation capacity and global competitiveness, they first must know where they stand. This report benchmarks 48 regions across Albania, Bosnia and Herzegovina, North Macedonia, and Serbia on 13 commonly available innovation indicators.
Key Takeaways
Belgrade leads the Subnational Innovation Competitiveness Index overall, while Serbia has 5 regions in the top 10 (including South Bačka, Nišava, Šumadija, and South Banat) and 5 regions in the bottom 10 (Raška, Pčinja, Zaječar, Jablanica, and Toplica).
Skopje and the Southeastern region from North Macedonia claim the third and eighth place positions.
Tirana, Albania, was the fourth-most-innovative region in the index, while Albania also claimed the bottom five regions (Gjirokastër, Lezhë, Berat, Kukës, and Dibër).
The Federation of Bosnia and Herzegovina placed 10th in the index, the best-performing region of Bosnia and Herzegovina.
Policymakers must continue to increase investment in research and development, build stronger connections between public and private innovation institutions, and support high-value-added manufacturing supply chains.
Innovation and competitiveness initiatives must develop a territorial focus to reduce the regional variation in innovativeness between capital and peripheral regions.
Introduction
Despite their smaller economies and less advanced industries, the Western Balkans have experienced significant growth over the past several years. The region—which includes Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia—has demonstrated its potential for economic development, reaching a combined gross domestic product (GDP) of about $183 billion in 2024 and growth levels that have exceeded those of the European Union for years. Over the past two decades alone, GDP per capita has risen by 120 percent, and as a location for business, the region has strived to improve; foreign direct investment (FDI) reached 6.4 percent of GDP in 2024, more than quadruple the EU average.[ii]
But the region still has a long way to go to reach parity with its EU neighbors. Private sector investment in research and development (R&D) accounts for just one-third of total R&D investment, half that of the EU, while the working-age population, which already faces a shortage of skilled researchers and scientists, is projected to decline by 20 percent by 2050. And though FDI levels in the region are high, global uncertainty contributed to a 26 percent decline in greenfield project announcements from 2023 to 2024. The region also still relies on less advanced industries, such as coal mining and tourism.
The Western Balkans are now entering a more challenging phase of growth. The rapidly shifting global trade environment, set into motion by the sweeping tariffs implemented by the second Trump administration, is expected to increase the cost and complexities of trade. Nevertheless, the Western Balkans’ low labor costs and proximity to EU markets make it a natural candidate for investment. Germany is by far the biggest European investor and trading partner of the region. German net FDI in the Western Balkans (excluding Montenegro) in 2023 stood at close to €4.6 billion, which was invested in 261 companies. However, not all Western Balkan economies profit equally from this investment. So far, net FDI is largely concentrated in Serbia, where nearly three-quarters (73.4 percent) of all net investments in the Western Balkan region are allocated. Notable investments have also been made in North Macedonia as well as in Bosnia and Herzegovina, while investments in Albania and Kosovo have been relatively low.[vi] Germany, with €161.2 billion in exports to the United States in 2024, has faced the highest exposure to the negative impacts of U.S. tariffs—and, considering the dominance of Germany in economic affairs in the Western Balkans, the slowdown of the German economy will exert an effect on decline in the Western Balkan economies as well.
The world is also entering an era of accelerated technological change. The rapid growth of artificial intelligence (AI) could rapidly increase the gap between rich and developing economies—Western Balkan countries could fall into the latter category if they continue to underinvest in innovation. On the other hand, AI has the potential to increase productivity in the region, fostering economic growth and innovation. Maintaining economic strength and international significance depends significantly on promoting innovation and embracing technological progress, which are essential for achieving growth in per capita GDP.
The countries examined in this study—Albania, Bosnia and Herzegovina, North Macedonia, and Serbia—represent over 85 percent of the population in the region and 90 percent of its economic output, thus driving the region’s economic trends. To fully understand the dynamics of innovation in these countries, it’s critical to explore the subnational factors that contribute to their landscapes. Regional differences in policy, industry, workforce skill levels, and geography, which are often hidden by broad national analyses, influence the economic success and innovativeness of a region. Understanding these regional differences allows policymakers to develop more-targeted strategies with a greater chance of success.
The countries examined in this study—Albania, Bosnia and Herzegovina, North Macedonia, and Serbia—represent over 85 percent of the population in the Western Balkans and 90 percent of its economic output.
The Global Innovation Index (GII) is a prominent tool that provides comprehensive assessments of innovation performance on a global and regional scale. The GII offers a multidimensional perspective on innovation, evaluating factors such as R&D investment, human capital, and business sophistication, which collectively contribute to a country’s innovation capacity.[x] In line with the GII, the Information Technology and Innovation Foundation (ITIF) has contributed significantly to the discourse on innovation competitiveness through its series of insightful subnational innovation competitiveness reports, produced within the Global Trade and Innovation Policy Alliance (GTIPA) network. These reports provide nuanced insights into the intricate relationships between innovation, economic development, and regional competitiveness, offering valuable perspectives for policymakers, businesses, and researchers alike
Previous editions of GTIPA subnational innovation competitiveness indexes have explored the subnational regions of North America, Latin America, Western Europe, and India. This study seeks to continue this series of analyses by showcasing the innovation capabilities, opportunities, and potential future direction of the largest countries in the Western Balkans: Albania, Bosnia and Herzegovina, North Macedonia, and Serbia.
The Index
The Balkan Subnational Innovation Competitiveness Index (SICI) captures the innovation performance of 48 subnational regions across 4 countries: Albania (12 regions (qarqe)), Bosnia and Herzegovina (3 entities), North Macedonia (8 regions), and Serbia (25 districts). In this report, we refer to all subnational counties, entities, and districts as regions to simplify the comparative analysis.
This report consists of 13 indicators representing the relevant determinants of a successful innovation ecosystem, grouped into three categories:
▪ Knowledge Economy: Indicators measure the educational attainment of the workforce; immigration of knowledge workers; employment in professional, technical, and scientific (PTS) activities; and manufacturing sector productivity.
▪ Globalization: Indicators measure high-tech exports and inward FDI.
▪ InnovationCapacity: Indicators measure a region’s share of households subscribing to broadband Internet, expenditures on R&D, the number of R&D personnel, the creation of new businesses, patent output, the extent of progress toward decarbonization, and venture capital (VC) investment.
The most heavily weighted category of the index is innovation capacity, which accounts for 55 percent of the index’s eight, while knowledge economy indicators account for 33 percent, and globalization indicators account for the remaining 12 percent.
Due to variations in data availability across nations and regions, some indicators may include data from varying years by country.