Ethnic Conflicts, Civil War and Economic Growth: Region-Level Evidence from former Yugoslavia

TL;DR

This study quantifies the long-term economic damage caused by the Yugoslav civil war at the regional level, revealing significant GDP losses and the role of ethnic tensions in shaping these impacts.

Contribution

It introduces a novel region-level analysis using synthetic control methods to estimate the economic effects of civil war and ethnic tensions in former Yugoslavia.

Findings

Regional GDP per capita declined by 38% due to the war.

Ethnic tensions explain up to 40% of economic losses.

Prolonged declines in war-affected regions, transient effects in capitals.

Abstract

We investigate the long-term impact of civil war on subnational economic growth across 78 regions in five former Yugoslav republics from 1950 to 2015. Leveraging the outbreak of ethnic tensions and the onset of conflict, we construct counterfactual growth trajectories using a robust region-level donor pool from 28 conflict-free countries. Applying a hybrid synthetic control and difference-in-differences approach, we find that the war in former Yugoslavia inflicted unprecedented regional per capita GDP losses estimated at 38 percent, with substantial regional heterogeneity. The most war-affected regions suffered prolonged and permanent economic declines, while capital cities experienced more transitory effects. Our results are robust to extensive variety of specification tests, placebo analyses, and falsification exercises. Notably, ethnic tensions between Serbs and Croats explain up to 40 percent of the observed variation in economic losses, underscoring the deep and lasting influence of ethnic divisions on economic impacts of the armed conflicts.