Long-Term Effects of Yugoslav War

Abstract

In this paper, we examine the long-term effects of civil war in former Yugoslavia on economic growth and development. To this end, we employ the synthetic control methodology, and construct the missing counterfactual scenario for the long-run growth and development of former Yugoslav countries in the absence of the civil war by matching their growth and development characteristics with non-Yugoslav countries at the parallel stages of development. The results suggest that the civil war led to unprecedented long-run growth and development losses. In the absence of the war, per capita income levels of former Yugoslav republics would improve markedly with notable differences in the magnitude of the growth and development gains. The estimated effects of the civil war are robust to a large number of placebo checks, and falsification-based random permutation tests. The results show that not a single former Yugoslav country down to the present day has achieved the level of per capita income predicted by their synthetic control groups in the years preceding the civil war. Our results show that the Yugoslav civil war appears to be a permanent institutional shock with long-lasting implications for economic growth and development.

Keywords: long-run growth, economic development, civil war, Yugoslavia

JEL Classification: C21, C55, N94, O43, P26, P51