Crowding in or crowding out? Public and private investment in the Western Balkans

Ioannis Gutzianas, Mario Holzner and Branimir Jovanovic

No 104, wiiw Policy Notes from The Vienna Institute for International Economic Studies, wiiw

Abstract: This note examines whether public infrastructure investment crowds in private investment in the Western Balkans and how this relationship compares with the EU. Using Eurostat data for 2000-2024 and a sector-level analysis, it finds that higher public infrastructure investment is generally associated with higher private investment in the region, broadly in line with EU patterns. One sectoral difference stands out public investment in health infrastructure generates much smaller crowding-in effects in the Western Balkans than in the EU, plausibly reflecting weaker domestic complementarity, given the limited health-related industrial base. Crowding-in effects in the region are strongest in education, followed by information and communication, while energy, water and waste, and transport show more moderate effects, and health exhibits the weakest effect. Overall, the results suggest that scaling up public infrastructure investment can mobilise private capital in the Western Balkans, with particularly high returns in education. Where fiscal space is constrained, prioritising investment towards sectors with stronger crowding-in effects can improve impact, while stronger support for domestic health-related capabilities could increase the payoff from health infrastructure spending.

Keywords: public investment; private investment; crowding in; infrastructure; Western Balkans (search for similar items in EconPapers)
JEL-codes: E22 H54 (search for similar items in EconPapers)
Pages: 20 pages including 4 Tables and 3 Figures
Date: 2026-03
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