http://www.voxeu.org/article/economics-secession
The economics of secession: Case of the former Yugoslavia
Andrés Rodríguez-Pose, Marko Stermšek
21 November 2014
One frequently used argument in favour of secession is that there are
economic benefits from independence. However, whether or not this is the
case remains largely unexplored. This column addresses this question by
examining the economic implications of secession in the case of the former
Yugoslavia. The authors find that independence had no favourable economic
impact. The way secession was achieved, however, mattered. Whereas
secession without real conflict did not leave any noticeable economic
impact, violent secession has, by contrast, led to a significant
destruction of wealth.
Secession is in fashion. After decades of strict enforcement during the
cold war of the principle of territorial integrity, the independence of
Slovenia from the former Yugoslavia, the collapse of the Soviet Union, the
division of the former Czechoslovakia, and the separation of Eritrea from
Ethiopia have opened the floodgates. Today, secessionist tensions are more
and more evident, with flashpoints on all continents. Official and
unofficial independence referenda in 2014 in Scotland, Catalonia, and the
Crimea have put secession once again firmly under the spotlight.
Secessionist movements across the world tend to claim that independence
comes with significant economic benefits. As argued in the case of the
Scottish referendum, “independence is the key to fully unlocking Scotland’s
potential and escaping the limitations of the current constitutional
framework” (Fiscal Commission Working Group 2013, p. 37). In Catalonia, it
has been contended that a Catalan state would manage public resources “in a
more transparent and responsible way” (Advisory Council for National
Transition 2013, p. 27) than the Spanish state. From this perspective,
secession is expected to lead to an ‘independence dividend’, characterised
by higher growth and prosperity in newly independent territories.
However, claims by secessionists to leave behind lower growth and
bureaucratic dysfunction through independence are generally based on very
limited empirical evidence. Whether or not secession generates an
independence dividend remains to a large extent unexplored.
In a forthcoming paper in Territory, Politics, Governance, we aim to fill
this gap by analysing the economic impact of successive secessions in the
case of the former Yugoslavia. By means of a fixed-effects panel data
analysis, we trace the economic performance of the eight original
constituent territorial units of Yugoslavia between 1956 and 2011 – first
as part of a federal whole, then as separate nations – whilst controlling
for other variables in order to assess the direction and degree of the
impact secession has had on the economic trajectories of the newly
independent states.
The disintegration of the former Yugoslavia
The former Yugoslavia was divided into six constituent republics (Croatia,
Bosnia and Herzegovina, Montenegro, Macedonia, Slovenia, and Serbia), with
the largest republic, Serbia, containing two autonomous provinces,
splitting it into Kosovo, Vojvodina, and Serbia Proper. It was a
plurinational state formed in the aftermath of World War I, which began to
unravel around 1980 and did not survive the collapse of communism. Shortly
after the fall of the Berlin Wall, non-communist governments were elected
in Croatia, Slovenia, Bosnia-Herzegovina, and Macedonia. Conflict loomed,
as Serbia strove to maintain its power as Yugoslavia’s biggest and most
influential republic, while the wealthier republics of the north – Slovenia
and Croatia – sought outright independence.
Gradually, all the republics gained independence. In some cases –
peacefully or with only brief conflicts (e.g. Macedonia, Montenegro and
Slovenia); in other cases – after long and bitter wars (e.g. Croatia,
Bosnia-Hercegovina, Kosovo). Seven independent republics have emerged out
of the original eight territorial units of the former Yugoslavia, and only
Serbia and Vojvodina remain together in the Republic of Serbia. Two of
these republics (Slovenia in 2004 and Croatia in 2013) have become EU
members.
Independence and economic performance
The disintegration of Yugoslavia coincided with deep recessions in its
constituent republics. As shown in Figure 1, by 2011 only Slovenia and
Macedonia had levels of wealth which clearly exceeded those of the early
1990s. Bosnia-Herzegovina, Serbia Proper, and Vojvodina displayed the worst
economic trajectories.
Figure 1. Economic trajectories for the republics and autonomous provinces
of former Yugoslavia, 1955-2011 (1955=100).
Source: Own elaboration using data from Yugoslav and national statistical
offices.
To what extent has independence shaped the economic trajectory of the
former Yugoslav republics? We address this question by means of a
multidimensional panel data econometric analysis, controlling for a number
of other factors which may have affected the economic performance of the
republics individually.
The analysis uses the year-on-year growth in real GDP in the eight
territorial units as the dependent variable. The independent variables are
presented in Table 1 below, and can be classified into three groups:
Those depicting the level of development of the territory;
Socioeconomic and structural controls; and
Factors linked to the independence process.
Table 1. Key variables and expected signs of the coefficients
Overall, the results of the analysis suggest that the economic benefits of
secession – and hence of dividing countries into smaller units – are
nowhere to be seen.
The emergence of small countries out of a bigger unit in the case of
Yugoslavia did not lead to any sort of economic dividend for the emerging
countries. All of the former Yugoslav republics suffered a significant loss
of wealth at the moment of independence. The severity of this loss and the
speed of the subsequent recovery have, however, predominantly been
determined by the process, more than by the mere fact, of independence. War
and the intensity of war represented a major blow to the economies of
Bosnia-Herzegovina and Kosovo. Sanctions and years of diplomatic conflict
have further limited the economic prospects of Serbia, while strong
disruption to trade following independence has been a serious barrier for
economic growth everywhere in the former Yugoslavia. The relatively smooth
transitions to independence in Slovenia, Montenegro, and Macedonia have
contributed to their having the best post-independence performance, despite
their very different starting points.
Hence, although “a small state should not be confused with a weak state”
(Gligorov et al. 1999, p. 2), our analysis shows limited evidence of a
direct independence dividend to breakaway republics of the former
Yugoslavia. Indeed, secession does not seem to have any bearing on their
subsequent economic performance. According to our analysis, Slovenia did
not perform better than, say, Bosnia-Herzegovina or Kosovo because it
separated from Yugoslavia earlier, but rather because it had the luck of
fighting a ten-day war which left 62 dead and caused little material
destruction. Bosnia endured a three-year long war which caused, depending
on sources, between 25,000 and 329,000 fatalities and massive material
destruction, while the war on Kosovo lasted officially almost one year and
a half and left around 14,000 dead. Slovenia also performed better than
Serbia, not because it achieved independence earlier, but because it fought
in fewer wars and did not experience economic sanctions. Slovenia has
finally performed better than most other former Yugoslav republics because
it has consistently been the most open country to trade and conflict did
not suddenly alter its trade patterns with the rest of the world, as was
the case for Bosnia-Herzegovina, Serbia, and Croatia.
Concluding remarks
Our research highlights that better economic trajectories are not linked to
the mere fact of seceding but by how the process of secession took place.
In cases where secession happened without real conflict and without
significant alteration of previous socioeconomic links to the rest of the
world, secession has not had any noticeable impact on the resulting
economic performance.
When secession is achieved by conflict, destruction and disruption of
pre-existing trade patterns, all those involved in the process suffer.
This underlines that, at least in terms of economic impact, secession is
not an event but a process. How the process takes place – and largely
whether there is agreement between the host and the seceding country –
determines the subsequent economic performance for both. It also emphasises
that the politics involved in any process of secession will almost
certainly determine ensuing economic trajectories.
Hence, in the current atmosphere of secessionist movements in different
parts of the world, more attention needs to be paid to how any potential
divorce between countries can be achieved, rather than to the simple act of
independence as such. Based on the case of former Yugoslavia, an amicable
divorce will deliver no independence dividend but likewise not
significantly damage the future development prospects of all parties
involved. A bitter divorce, by contrast, is likely to have long-lasting,
negative economic consequences. Unfortunately, so far the focus has been
mainly on the implications of secession, rather than on how any
secessionist process is managed.
References
Advisory Council for National Transition (2013) L’Administració tributària
de Catalunya. Rapport no. 2, 20 December 2013. Generalitat de Catalunya,
Barcelona.
Fiscal Commission Working Group (2013) First Report - Macroeconomic
Framework, The Scottish Government, Edinburgh.
Gligorov, V, M Kaldor, and L Tsoukalis, (1999) Balkan Reconstruction and
European Integration, London School of Economics, the European Institute,
London.
Received on Sun Nov 23 2014 - 08:18:04 EST