Regional competitiveness and growth performance in EU enlargement contexts depend critically on institutional foundations, yet the extent to which governance quality shapes macroeconomic policy transmission remains insufficiently examined in comparisons between the European Union and the Western Balkans. Using a panel Vector Error Correction Model (VECM) for 33 countries over 2002–2022, this paper compares cointegration patterns, adjustment dynamics, and shock transmission channels across both regions. The results show pronounced structural differences: in the EU panel, macroeconomic policies transmit more effectively into real outcomes, consistent with a stable institutional environment and stronger policy credibility. Long-run estimates further indicate that institutional quality is more strongly associated with sustained growth in the EU than in the Western Balkans, where weaker institutional anchoring limits reform effectiveness. These findings suggest that stronger institutions facilitate resilient regional competitiveness and more effective macroeconomic policy, implying that governance reforms should accompany, and in many cases precede, stabilization and liberalization efforts in EU pre-accession settings.
