Debt Trap and China’s Economic Footprint in the Western Balkans

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.