Research and development (R&D) represents a crucial input to the innovation process, while R&D expenditure significantly determines the innovation capacity of a given country. The issue of the sub-optimal allocation of resources to R&D has been widely elaborated. The low innovation potential of post-transition countries, including western Balkan countries, may inter alia stem from insufficient capacity to provide the conditions for efficient R&D. Namely, the long transition has had tremendous economic, political and social impacts. In consequence, the western Balkans have experienced an erosion of their R&D potential while their national innovation systems remain under-developed. This article seeks to explore the scope and nature of R&D in the western Balkans as determinants of their innovation capacity and to assess the impact of R&D on economic development. In the process, it seeks to come up with policy recommendations that will contribute to better R&D performance and which will assist the transformation of western Balkans countries into 'innovation learners'.