Discussed the geopolitical changes in the Balkans after the Cold War, the political and economic transformation of Western Balkan countries, and their reforms in pursuing EU membership. The economic growth of Western Balkan countries fluctuates and lags behind that of EU economies, relying on external markets, capital, and technology. The chapter introduces Schumpeter's innovation theory and the development of his new Schumpeter theory, emphasizing the core role of innovation in economic development, as well as the interactivity, complementarity, and systematicity of the innovation process. Analyzed the characteristics of the innovation system in Western Balkan countries and the reasons for their insufficient innovation capabilities, explored the role of the state in technological modernization, and proposed policy recommendations to promote technological upgrading and innovative development.

Overview of Economic Development in Western Balkan Countries

Introduced the historical background and current situation of economic development in Western Balkan countries. After gaining independence in the late 19th and early 20th centuries, Balkan countries experienced per capita GDP growth brought about by industrial development and foreign investment, but the gap with developed countries such as Germany is still widening. After World War II, Balkan countries implemented a socialist economic model and experienced rapid economic recovery, but there were problems such as institutional rigidity. In the late 1980s, the economies of Balkan countries faced collapse. In the 1990s, Balkan countries transitioned to a market economy, but the initial economic recession was severe. After the 21st century, the western Balkan countries enjoyed political stability and accelerated industrial growth, but the financial crisis and the COVID-19 hit the economy again in 2008. In 2023, the economic gap between Western Balkan countries and EU member states remains significant, and the economic catch-up effect is limited.

Multidimensional Investigation of Innovation Systems in 2 Western Balkan Countries

The key to the economic development and catch-up of Western Balkan countries lies in innovation and technological upgrading, but their innovation capabilities are far lower than those of developed countries. The 2023 European Innovation Scorecard shows that the innovation capacity of Western Balkan countries is only 36.2% to 63.2% of the EU level. Innovation relies on the production, dissemination, absorption, and utilization of knowledge, and the development of a country's innovation capability is reflected in the effectiveness of its national innovation system. This article adopts Christopher Freeman's definition of "national innovation system", emphasizing the interactivity, complementarity, and systematicity among the subsystems in the national innovation system.

The Process of Technological Modernization in Western Balkan Countries Led by Foreign Countries

Discussed the practical difficulties faced by Western Balkan countries in the process of technological modernization, especially in international trade and foreign direct investment. Due to limited domestic markets and capital, Western Balkan countries are highly dependent on international trade and foreign direct investment, but the effectiveness of knowledge and technology transfer through these channels is limited by the strength of their national innovation systems. The export of high-tech products from Western Balkan countries is generally lower than that of developed countries such as Germany, and the share of high-tech product exports does not necessarily equate to a country's technological capabilities. Although foreign direct investment has a positive effect on economic growth, it also leads to the process of technological modernization being dominated by foreign countries, which suppresses domestic innovation and endogenous technological development. Policy recommendations include balancing domestic and international technological modernization, strengthening interaction and complementarity among various subsystems, drawing on Croatia's successful experience, identifying key industries, formulating long-term industrial policies, promoting cooperation between the public and private sectors, reducing dependence on technology from multinational corporations, and enhancing the country's ability for independent technological development.

4 Conclusion

The modernization and industrialization of Western Balkan countries started late, and the development gap with EU member states has not narrowed. The innovation capability is backward, and the national innovation system has shortcomings, including negative population growth, dominance of low value-added industries, insufficient R&D investment, underdeveloped financial system, and low government efficiency. The Western Balkan countries are at a disadvantage in the global value chain and rely on international trade and foreign direct investment. Although foreign direct investment brings short-term growth, it is not conducive to long-term development. Western Balkan countries should learn from historical lessons, balance domestic and foreign factors, focus on innovation system construction, formulate industrial policies, attract foreign investment, enhance the value of the industrial chain, strengthen talent cultivation, curb corruption, promote dynamic interaction and complementarity among various subsystems, in order to achieve technological upgrading and economic growth.