Debt Trap and China’s Economic Footprint in the Western Balkans
DOI:
https://doi.org/10.34135/sjps.240204Keywords:
China, Western Balkans, Initiative 14+1, Debt trap, Trade openness, Foreign direct investment, Public debtAbstract
This paper investigates whether the Chinese economic footprint, proxied by bilateral trade and foreign direct investment (FDI), is associated with the gradual emergence of a debt trap in Western Balkans countries during the period from 2011 to 2022. By employing the dynamic panel data estimation, the research reveals that increasing Sino-Western Balkans trade and FDI intensity seems to contribute to rising debt levels in the Western Balkans. Despite the benefits of trade and investment agreements with China for infrastructure development in these countries, they also seem to heighten financial dependence, potentially jeopardizing the region’s economic stability through unconditional low-interest loans. Given the Western Balkan countries’ candidate status for EU membership, understanding of such Chinese involvement and its implications is crucial for their progress toward further integration.
References
Agarwal, S. et al. (2014). Predatory lending and the subprime crisis. In: Journal of financial economics. Vol. 113, No. 1, pp. 29-52. DOI: https://doi.org/10.1016/j.jfineco.2014.02.008.
Agiropoulos, C., Galanos, G., and Poufinas, T. (2021). Debt Versus Non-Performing Loans: An Investigation on the Causality Direction Within the Countries of Eurozone. In: POUFINAS, T. (ed.) Debt in Times of Crisis. Cham: Palgrave Macmillan. DOI: https://doi.org/10.1007/978-3-030-74162-4_7.
Aizenman, J., and Marion, N. (2009). Using Inflation to Erode the U.S. Public Debt. NBER Working Papers No. 15562. DOI: https://doi.org/10.3386/w15562.
Armendariz, S. et al. (2024). Taming Public Debt in Europe: Outlook, Challenges, and Policy Response. IMF Working Paper No. WP/24/181. Washington: International Monetary Fund. DOI: https://doi.org/10.5089/9798400285806.001.
Ashraf, J., Luo, L. and Anser, M. K. (2021). Do BRI policy and institutional quality influence economic growth and environmental quality? An empirical analysis from South Asian countries affiliated with the Belt and Road Initiative. In: Environmental Science and Pollution Research. Vol. 29, No. 6, pp. 8438-8451. DOI: https://doi.org/10.1007/s11356-021-16330-y.
Ashraf, J., Luo, L. and Khan, M. A. (2022). The spillover effects of institutional quality and economic openness on economic growth for the belt and road initiative (BRI) countries. In: Spatial Statistics. Vol. 47, pp. 100566. DOI: https://doi.org/10.1016/j.spasta.2021.100566
Baltagi, B. H. (2008). Econometric analysis of panel data. Chichester: Wiley, 302 pp. ISBN-13 978-0-470-01456-1.
Bastian, J. (2017). The potential for growth through Chinese infrastructure investments in Central and South-Eastern Europe along the “Balkan Silk Road” (Report). European Bank for Reconstruction and Development.
Blundell, R. and Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. In: Journal of econometrics. Vol. 87, No. 1, pp. 115-143. DOI: https://doi.org/10.1016/S0304-4076(98)00009-8.
Boruta, R. (2021). China’s Interaction with Central and Eastern Europe: Relationships at Crossroads? (Policy Paper). Eastern Europe Studies Centre.
Brinza, A. et al. (2024). EU-China Relations: De-risking or De-coupling − The Future of the EU Strategy towards China (Study requested by the AFET committee). European Parliament.
Cahen, D. (2023). Addressing Sovereign Debt Challenges in the European Union. Stockholm: Eurofi Regulatory Update [online]. Available at: https://www.eurofi.net/wp-content/uploads/2023/06/eurofi_addressing-sovereign-debt-challenges-in-the-european-union_stockholm_april-2023.pdf [Accessed 20.03.2025].
Conley, H. A., et al. (2020). China’s” Hub-and-Spoke” Strategy in the Balkans. Washington: Center for Strategic and International Studies (CSIS), 30 pp. [online]. Available at: http://csis-website-prod.s3.amazonaws.com/s3fs-public/publication/200427_ChinaStrategy.pdf [Accessed 17.10. 2023].
Del Monte, A., and Pennacchio, L. (2020). Corruption, Government Expenditure and Public Debt in OECD Countries. In: Comparative Economic Studies. Vol. 62, No. 4, pp. 739–771. DOI: https://doi.org/10.1057/s41294-020-00118-z.
Doehler, A. (2019). How China Challenges the EU in the Western Balkans. Available at: https://thediplomat.com/2019/09/how-china-challenges-the-eu-in-the-western-balkans/ [Accessed 05.06.2024]
Dvorský, T. (2022). Čínska mäkká moc a slovenská skúsenosť. Košice: Pavol Jozef Šafárik University, 236 pp. [online]. Available at: https://unibook.upjs.sk/img/cms/2022/ff/cinska-makka-moc-a-slovenska-skusenost.pdf [Accessed 17.10.2023].
Escolano, J. (2010). A Practical Guide to Public Debt Dynamics, Fiscal Sustainability, and Cyclical Adjustment of Budgetary Aggregates. IMF Technical Notes and Manuals TNM/10/02. DOI: https://doi.org/10.5089/9781462396955.005.
European Parliament (2022). China’s strategic interests in the Western Balkans. Available at: https://www.europarl.europa.eu/RegData/etudes/BRIE/2022/733558/EPRS_BRI(2022)733558_EN.pdf [Accessed 22.05.2024].
Eurostat. (2023). EMU convergence criterion series – annual data. [online]. Available at: https://ec.europa.eu/eurostat/databrowser/view/tec00097/default/table?lang=en [Accessed 17.10.2023].
Eurostat. (2023). HICP - inflation rate. [online]. Available at: https://ec.europa.eu/eurostat/databrowser/view/tec00118/default/table?lang=en [Accessed 17.10.2023].
Filip, B. F. (2019). Determinants of public debt. The case of the European Union countries. In: Theoretical & Applied Economics. [online]. Available at: http://store.ectap.ro/suplimente/International_Finance_and_Banking_Conference_FIBA_2019_XVII.pdf#page=61 [Accessed 17.10. 2023].
Fu, X., Buckley, P. J. and Fu, X. M. (2020). The growth impact of Chinese direct investment on host developing countries. In: International Business Review. Vol. 29, No. 2, pp. 101658. DOI: https://doi.org/10.1016/j.ibusrev.2019.101658.
Gafuri, A. (2020). The Influence of Russia, China and the EU in the Western Balkans: Is Democracy the Only Game in Town? In: OBSERVATORY. Pp. 333-341.
Gargouri, I. and Keantini, M. (2016). The determinants of public debt. In: The Romanian Economic Journal. [online] Vol. 18, No. 59, pp. 111-124. Available at: http://www.rejournal.eu/sites/rejournal.versatech.ro/files/articole/2016-03-30/3346/7majdiksantini.pdf [Accessed 17.10. 2023].
Hurley, J., Morris, S. and Portelance, G. (2018). Examining the Debt Implications of the Belt and Road Initiative from a Policy Perspective (CGD Policy Paper 121). Center for Global Development.
International Monetary Fund. (2023). World Economic Outlook Database. [online]. Available at: https://www.imf.org/en/Publications/WEO/weo-database/2022/October/weo-report?c=914,963,943,962,942,&s=GGXWDN,GGXWDN_NGDP,GGXWDG,GGXWDG_ [Accessed 17.10. 2023].
Ivanić, M. and Savović, A. (2020). Belt and Road Initiative and Bosnia and Herzegovina. In: China-CEE Institute Working Paper. [online]. Available at: https://china-cee.eu/wp-content/uploads/2020/07/Working_paper-202029-by-Mladen-Ivanic%CC%81-Aleksandar-Savovic%CC%81.pdf [Accessed 17.10. 2023].
Jaćimović, D., Deichmann, J. I. and Tianping, K. (2023). The Western Balkans and Geopolitics: Leveraging the European Union and China. In: Journal of Balkan and Near Eastern Studies. Vol. 25, No. 4, pp 626-643. DOI: https://doi.org/10.1080/19448953.2023.2167164
Jasnić, I. M. (2022). PRVI PUT U ISTORIJI VEĆINA GRAĐANA SRBIJE PROTIV ULASKA U EU Veliko istraživanje Ipsosa: Ključni razlog za to su PRITISCI IZ BRISELA koje trpimo zbog Rusije. [online]. Available at: https://www.blic.rs/vesti/politika/prvi-put-u-istoriji-vecina-gradjana-srbije-protiv-ulaska-u-eu-veliko-istrazivanje/71wlnbr [Accessed 17.10.2023].
Ladevac, G. (2020). The Republic of Serbia and the Belt and Road Initiative. In: Security Challenges and the Place of the Balkans and Serbia in a Changing World. pp. 273–283. DOI: https://doi.org/10.18485/iipe_balkans_rssc.2020.ch17.
Nye, J. S. (1990). Soft Power. In: Foreign Policy. No. 80, pp. 153-171. DOI: 10.2307/1148580.
Nye, J. S. (2008). Public Diplomacy and Soft Power. In: Annals of the American Academy of Political and Social Science. Vol. 616, pp. 94-109. DOI: 10.1177/0002716207311699.
OEC. (2023). North Macedonia/China. [online]. Available at: https://oec.world/en/profile/bilateral-country/mkd/partner/chn?dy namicBilateralTradeSelector=year2019.
Popović, G. and Erić, O. (2018). Economic development of the Western Balkans and European Union investments. In: Economic research-Ekonomska istraživanja. Vol. 31, No. 1, pp. 1539-1556. DOI: https://doi.org/10.1080/1331677X.2018.1498009.
Sandhu, T. P. S. (2021). Debunking China’s debt trap diplomacy. In: International journal of political science and governance. Vol. 3, No. 2. DOI: 10.33545/26646021.2021.v3.i2c.127.
Selimi, N., Sadiku, M. and Sadiku, L. (2017). The impact of tourism on economic growth in the Western Balkan countries: An empirical analysis. In: International Journal of Business and Economic Sciences Applied Research. Vol. 10, No. 2. DOI: 10.25103/ijbesar.102.02
Shah, S. S. A., et al. (2024). Fiscal Resilience or Vulnerability? Assessing Public Debt Sustainability in the Developing Countries During 1996–2020. In: Journal of the Knowledge Economy. DOI: https://doi.org/10.1007/s13132-024-02251-x.
Shahini, L. and Muço, K. (2022). The Impact of Public Debt on Economic Growth in the Western Balkans. In: Transition Studies Review. Vol. 29, No. 1, pp. 83-96. DOI: http://dx.doi.org/10.14665/1614-4007-29-1-005.
South Asia Monitor (2020). China’s BRI Promised Prosperity, Gave Debt Trap to Countries like Pakistan, Sri Lanka, Maldives’. [online]. Available at: https://www.southasiamonitor.org/china-watch/chinas-bri-promised-prosperity-gave-debt-trap-countries-pakistan-sri-lanka-maldives [Accessed 05.06.2024].
Soyaltin-Colella, D. (2023). The EU Accession Process, Chinese Finance and Rising Corruption in Western Balkan Stabilitocracies: Serbia and Montenegro. In: Europe-Asia Studies. Vol. 75, No. 8, pp. 1311-1335. DOI: 10.1080/09668136.2022.2115013.
Sun, Y. et al. (2022). The Belt & Road Initiative and the public and private debts of participating countries: The role of China’s economic policy uncertainty. In: Structural Change and Economic Dynamics. Vol. 60, pp. 179-193. DOI: https://doi.org/10.1016/j.strueco.2021.11.014.
Tang, H. et al. (2023). Manufacturing industry relocation trends from the perspective of field theory: The case of the belt and road Sino-Europe economic corridor. In: Ocean & Coastal Management. Vol. 244. DOI: https://doi.org/10.1016/j.ocecoaman.2023.106825.
The World Bank. (2023). World Development Indicators. [online]. Available at: https://databank.worldbank.org/source/world-development-indicators/preview/on [Accessed 17.10. 2023].
Vangeli, A. (2022). The role of China in North Macedonia. [online]. Available at: https://library.fes.de/pdf-files/bueros/athen/19416.pdf#page=50 [Accessed 25.03.2025].
Vulović, M. (2023). Economic Relations between the Western Balkans and Non-EU Countries (SWB Comment). Available at: https://www.swp-berlin.org/publications/products/comments/2023C36_WesternBalkans.pdf [Accessed 22.05.2024].
Wang, H. et al. (2021). Confucius institute, belt and road initiative, and internationalization. In: International Review of Economics & Finance. Vol. 71, pp. 237-256. DOI: https://doi.org/10.1016/j.iref.2020.09.011
Wen, X. et al. (2019). Impacts of the Belt and Road Initiative on the China-Europe trading route selections. In: Transportation Research Part E: Logistics and Transportation Review. Vol, 122, pp. 581-604. DOI: https://doi.org/10.1016/j.tre.2019.01.006.
World Integrated Trade Solution. (2023). Export Product Share By Country Product from World. [online]. Available at: https://wits.worldbank.org/CountryProfile/en/Country/BY-COUNTRY/StartYear/1988/EndYear/2020/TradeFlow/Export/Indicator/XPRT-PRDCT-SHR/Partner/WLD/Product/Total [Accessed 17.10. 2023].
World Integrated Trade Solution. (2023). Import Product Share by Country Product from World. [online]. Available at: https://wits.worldbank.org/CountryProfile/en/country/by-country/startyear/LTST/endyear/LTST/tradeFlow/Import/indicator/MPRT-PRDCT-SHR/partner/WLD/product/Total [Accessed 17.10. 2023].
Ziberi, B. And Alili, M. Z. (2021). Economic Growth in the Western Balkans: A Panel Analysis. In: South East European Journal of Economics and Business. Vol. 16, No. 2, pp. 68-81. DOI: https://doi.org/10.2478/jeb-2021-0015.
Zweers, W. et al. (2020). China and the EU in the Western Balkans. In: Clingendael Report, 2020, 8. [online]. Available at: https://www.clingendael.org/sites/default/files/2020-08/china-and-the-eu-in-the-western-balkans.pdf [Accessed 24.05. 2024].
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Slovak Journal of Political Sciences
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
Please, read licence agreement.
Publication Charge
There is no publication fee or charge for any submitted or accepted articles. There is no article processing charges (APCs) would be billed to authors.
