The purpose of this paper is to analyse the development of knowledge economy and its importance for the competitiveness of the Western Balkans countries. The aim of the research is to evaluate the development degree of knowledge economy in the Western Balkans countries through the comparison of relevant indicators with the European Union countries. The research information base is the official World Bank data about values ​​of "the knowledge economy index" (KEI). Comprehensive analysis leads us to conclusions about: a) the relative positions of the Western Balkans countries in relation to the EU countries, b) the development state of knowledge economy in analysed countries according to the pillars of the knowledge economy index. The paper concludes by highlighting the implications and recommendations for conducting the economic policy in the area ​​which encourages the development of knowledge economy and improves competitiveness.