Why is Serbia an economic growth underachiever

In a nutshell, Serbia is an economic growth laggard due to deficient institutions, specifically lacking rule of law and control of corruption, and due to low investment, which itself is curbed by corruption and poor rule of law. The gap in education achievement also hinders Serbia's long-term growth. We asses that Serbia is currently growing 2 percentage points below its potential: above 3% instead of around 5%. Roughly one half of the growth gap could be explained by under performing institutions (1 p.p.), and the other half by low investment (0.7 p.p.) and education (0.2 p.p.). These results are obtained by estimating the empirical growth equation for EU countries and using it as a benchmark to assess growth performance in Serbia. Our findings conclusively point to reforms of social and economic fundamentals if Serbia is to achieve its potential growth and catch-up with comparative countries of Central and Eastern Europe.