Economic growth, regional development, and nation formation under socialism: evidence from Yugoslavia

Abstract

Yugoslavia provides a fascinating historical setting to analyse the consequences of socialism – the greatest socio-economic experiment of the 20th century. Yugoslavia was one of fastest growing countries in the world until the late 1970s. During this period, it followed a different institutional trajectory compared to other socialist economies. But, during the 1980s, economic growth came to a standstill, and the country eventually descended into civil war. This doctoral dissertation is motivated by the aforementioned observations. It seeks to analyse them. The core of the thesis is composed of three closely related, but self-standing, papers. The unifying theme of the three papers is economic development in socialist Yugoslavia. The first paper revisits aggregate economic growth in Yugoslavia. I find that distorted labour incentives caused the slowdown of the Yugoslav economy. I argue that labour-managed firms hindered the ability of Yugoslavs to work. Since Yugoslavia was extremely heterogeneous, the second paper moves below the aggregate level in order to reconstruct the regional development trajectories. I find that regional income divergence was caused by the failure of the poorer regions to converge towards the employment rates and efficiency levels of the richer regions. I argue that this failure was caused by labour-managed firms as well, whereby they had a spatially uneven economic impact. In Yugoslavia, regional economic tensions were reinforcing, and were reinforced by, ethnic tensions. In the third paper, I explore ethnic relations by analysing the formation of Yugoslav national sentiment and its economic effects. I find that ethnically diverse municipalities were conducive towards the formation of Yugoslav sentiment because they stimulated ethnic intermarriage. In addition, I find that municipalities that contained a larger amount of self-declared Yugoslavs experienced a lower population fraction of deaths during the Bosnian War of 1992-1995