Stefan Aleksić

Ministry of Finance of Montenegro,

Montenegro

stefan.aleksic.me@gmail.com

ORCID 0009-0006-6907-6064

Determinants of income inequality in southeast European transition economies

Radislav Jovović

Mediterranean University,

Montenegro

radislav.jovovic@unimediteran.net

ORCID 0009-0001-1079-2369

Abstract. This paper examines the determinants of income inequality in Southeast European (SEE) countries transitioning from socialist to market economies, in a 1990-2023 period. It focuses on economic, institutional, and technological factors that have shaped the region over three decades. Institutional deficits, corruption, weak competition, privatization speed and transparency, innovative and technological backwardness, and human capital development are hypothesized as key drivers. Using a fixed-effects panel regression for six SEE countries, we model the Gini index as a function of these variables. The results reveal strong persistence in income inequality, with the lagged Gini index being the most significant predictor. We find that the first phase of privatization and higher levels of innovation significantly increased inequality, the latter supporting the skill-biased technological change hypothesis. Contrary to expectations, variables for institutional deficit, corruption, and market competition did not show statistically significant direct effects in the multivariate model. The study concludes that reducing inequality in the region requires policies that directly address its structural persistence, manage the distributional consequences of technological advancement, and learn from the legacy of opaque privatization processes. 

Received: May, 2025

1st Revision: July, 2025

Accepted: December, 2025

DOI: 10.14254/2071-8330.2025/18-4/10

JEL Classification: D31, D63, O15, P36, P30

Keywords: income inequality, panel regression, Gini coefficient, Southeast Europe (SEE), transition economies