Does Digitalisation Reduce Youth Unemployment in the Western Balkans? The Role of Economic Growth and Foreign Investment

This study investigates whether digitalisation contributes to reducing youth unemployment in the Western Balkans. The empirical analysis uses balanced panel data for Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia over the period 2005–2024. Internet usage is employed as the main indicator of digitalisation, while economic growth, foreign direct investment, inflation, tertiary education, and trade openness are included as control variables. The study applies Fixed Effects and Random Effects panel estimations, with the Hausman test used to select the most appropriate specification. Additional robustness checks are conducted using Driscoll–Kraay standard errors and System Generalised Method of Moments to address cross-sectional dependence, heteroskedasticity, serial correlation, and potential endogeneity.

The results indicate that higher levels of internet usage are associated with lower youth unemployment in the Western Balkan economies. Economic growth and foreign direct investment also contribute positively to youth labour-market outcomes by supporting job creation and expanding productive capacity. Inflation is generally associated with weaker employment prospects, while the effects of tertiary education and trade openness differ across model specifications. These findings suggest that digitalisation can improve access to employment information, remote work opportunities, digital entrepreneurship, and new forms of economic activity. However, its benefits depend on complementary investments in digital infrastructure, education, labour-market policies, and private-sector development. The study provides updated regional evidence and offers policy recommendations for promoting inclusive digital transformation and sustainable youth employment in the Western Balkans.