Rejected by EU (for now), North Macedonia can reap NATO dividend

While the European Council has once again delayed the commencement of accession talks on EU membership for North Macedonia (as well as Albania), economists at the Vienna Institute of International Economic Studies (wiiw) claim in a new report that NATO accession – which looks set to happen sooner rather than later – can bring its own benefits in terms of FDI inflows.

“When committing long-term capital to the region, foreign firms appear to highly value the US security guarantee that NATO membership brings,” wrote Mario Holzner, the executive director of wiiw.

“In economic terms, we find that NATO accession is even more important for the country than entry into the EU, at least in the sense that it provides the most serious security guarantee available to foreign investors (for example, US military support). This then helps countries to attract much needed foreign direct investment. Given that the economic model of Central, East and Southeast Europe (CESEE) has been based, from the very beginning of transition, on capital and technology transfers from Western Europe via FDI, this is of utmost economic importance.”

Researchers at wiiw found that, on average across CESEE, being a NATO member increases the share of FDI in GDP by 11.4 percentage points. This is slightly more (by one percentage point) than what can be expected from EU membership.

“Our model indicates that NATO membership is much more important for FDI inflows than EU membership, in the years immediately before accession. FDI inflows into CESEE economies picked up significantly three years before NATO accession, in anticipation of the strong security guarantee that this would bring. Presumably, NATO’s Article V—which effectively gives all members US protection in the event that they are attacked—made foreign investors more comfortable about committing their capital to these countries over a long time horizon,” continued Mr Holzner.

“As a result, despite the further delay in the start of EU accession negotiations for Albania and North Macedonia, the direct economic impact of recent developments does not have to be wholly negative. This is especially true for North Macedonia as a soon-to-be-member of NATO. This assumes, of course, that there are no negative political developments and backsliding on reform progress as a result of the unfortunate decision in Brussels.”