MEASURING MACRO-ECONOMIC RESILIENCE: A SIMPLE COMPOSITE INDICATOR FOR THE WESTERN BALKANS

Many economic phenomena in economics and social sciences are measured using composite indicators that are weighted averages of single time-series variables. In a decade of complex changes in national economic systems owing to various shocks, developing an indicator that provides a more nuanced and accurate representation of the country’s resistance to economic shocks is pivotal. Using data from six Western Balkan economies (Albania, Bosnia and Herzegovina, North Macedonia, Montenegro, and UNMIK Kosovo*) over the period 20002023, we construct a simple composite indicator of macroeconomic resilience to evaluate its temporal evolution empirically. Our index captures three unique dimensions: absorptive, adaptive, and transformative. 
Our findings reveal that even though all countries have become more resilient to economic, social, and political shocks, the pace of improvement varies, widening the performance gap between the top and bottom countries in this region. In particular, Montenegro and Serbia are presented as the regional leaders in building macroeconomic resilience. In contrast, UNMIK Kosovo11F[1]* encounter the most notable challenges in the region.
Additionally, future research should examine the data structure used in the present study. In particular, it should underscore the use of multiway Principal Component Analysis (PCA), where we have three dimensions: countries, years, and variables, because the standard PCA approach is typically applied cross-sectional datasets and does not fully exploit the multidimensional structure of panel data. Ultimately, the relevance of a composite indicator of macroeconomic resilience extends beyond the academic domain to encompass practical implications for policymakers in their decision-making.