In 2005 the relations of EU and Western Balkan countries were passed from “External Relations” to “Enlargement” policy. As WB countries make steps forward in the future membership of the EU, the diversity in society within the WB is expected to further increase. The aim of this paper is to find out the relationship between cultural diversity and ethnic fractionalization from one side and governance, competitiveness and human development from the other side. The paper opted to explore the ethnic diversity within the Western Balkan countries based on the latest data of census for each country and on the Distance Adjusted Ethno-Linguistic Fractionalization Index proposed by Kolo (2012). Furthermore, it compared the economic performance of these countries with the indicators of the ethnic diversity. Even though the literature argues that cultural diversity has negative impact on countries’ performance, the study finds out that highly homogenous societies in WB are no more prone to good governance, global competitiveness and human development than highly heterogeneous societies within the region. In other words, countries with lower fractionalization index (such as Kosovo and Serbia) do not show a significantly higher performance than countries with higher fractionalization index (such as Macedonia, Bosnia and Herzegovina). To sum up, the influence of regional geographic distance seems to be much more significant compared to cultural diversity because the economic capacity and performance of WB countries are found to be positive but still modest. The Western Balkan countries are having a considerable mixture of ethnicities, languages and religions. These varieties can push this group of countries to have a consensus among them in the economic aspects or to increase the gap among each other.
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