Inconsistent development policy and traditionally inherited poverty, lack of adequate institutional support and the impact of the transition of Serbian economy are affected the deepening of the parameters of underdeveloped areas in Serbia (South Serbia and Stari Ras) and appear of new underdeveloped area (Borski basen). These areas have very low competitiveness and represent bottleneck in the overall competitiveness of Serbian economy. Low Serbian competitiveness caused by many problems (corruption, ineffective legal system and weak protection of contracts, political instability and others), where undeveloped areas represent a special dimension of this problem, with their specific problems, current from almost every social standpoint. This paper explains the specific factors that are the largest source of uncompetitiveness underdeveloped areas, analyzing economic, demographic and socio-political factors, as well as infrastructure, unemployment and education. Results showed that these indicators of competitiveness in underdeveloped areas have far less values than the same indicators in other areas in Serbia. The major causes of low competitiveness of underdeveloped areas (except common with the Republic of Serbia) are: low employment, low economic activity, low productivity, low investments, poor educational and demographic structure, underdeveloped infrastructure and socio-political uncertainty. At the end, the paper presents the measures and incentives which increase competitiveness of underdeveloped areas.