Foreign Trade, FDI, and Capital Flows Study
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The Trade Policy Strategy 2.0 for North Macedonia: Trade Competitiveness Diagnostic and State Aid Effectiveness Report(Washington, DC, 2022-09) World BankFor a small and landlocked country like North Macedonia, trade integration is particularly important to sustain the country's economic growth and transformation. The importance of trade became even more visible during a global crisis and in the post-pandemic recovery period. Trade integration has contributed to North Macedonia’s rise to the status of a middle-income country, but its trade strategy is showing signs of fatigue. The lack of trade diversification and economic transformation limits the role of trade in North Macedonia’s growth model. Also, trade openness in services has been weaker than for merchandise, highlighting the untapped potential for trade in services. North Macedonia's growth strategy should aim to diversify the economy and seek export oriented FDI that would have stronger spillover effects on the domestic economy. State aid provided through tax incentives to boost exports and attract FDIs will need to be redesigned to be more effective. A revamped trade strategy is needed that will allow North Macedonia to move further up the GVC ladder and expand its economic diversification through agriculture, agri-business, services, or more complex manufacturing, which will ultimately lead to greater job creation, business survival, and diversification of the economy as a whole. The proposed reform agenda needs to be considered as part of a broader strategy to improve the business climate and attractiveness for investment and raise productivity in the economy. Ultimately, the country’s ability to achieve greater economic diversification and upgrading will depend on a large number of different factors, including competition policy, investment policies, innovation, education policies.