The Economics of State Fragmentation: Assessing the Economic Impact of Secession
58 Pages Posted: 24 Feb 2016 Last revised: 30 Nov 2016
Date Written: July 4, 2016
This paper provides empirical evidence that declaring independence significantly lowers per capita GDP based on a large panel of countries covering the period 1950-2013. To do so, we rely on a semi-parametric identification strategy that controls for the confounding effects of past GDP dynamics, anticipation effects, unobserved heterogeneity, model uncertainty and effect heterogeneity. Our baseline results indicate that declaring independence reduces per capita GDP by around 20% in the long run. We subsequently propose a novel quadruple-difference procedure to demonstrate the stability of these results. A second methodological novelty consists of the development of a two-step estimator to shed some light on the primary channels driving our results. We find robust evidence that the adverse effects of independence increase in the extent of surface area loss, pointing to the presence of economies of scale, but that they are mitigated when newly independent states liberalize their trade regime or use their new-found political autonomy to democratize.
Addendum can be found at https://ssrn.com/abstract=2736848
Keywords: Independence dividend; panel data; dynamic model; synthetic control method; differencein-difference; triple-difference; quadruple-difference; two-step approach
JEL Classification: C14, C32, H77, O47
Suggested Citation: Suggested Citation