Abstract
The whole world looked on as the passage of the Dayton Accords resulted in a ceasefire in Bosnia and Herzegovina (BiH), however, the years to follow oversaw protracted conflict fuelled by ethnic tension, government corruption and attempts to create a peaceful economy. Globalization and the potential to build an economy was a significant incentive to motivate actors to work together in the process of rebuilding a stable infrastructure and opening the economy. Although BiH has progressed economically, certain indicators highlight that all is not as it should be. In this paper, therefore we examine the contributions of institutional quality and financial deepening to economic development in a post-conflict area like BiH. Using an endogenous growth model, the evidence suggests that financial deepening and institutional quality are necessary ingredients for economic performance in BiH.
Highlights
In post-conflict societies with fewer cross-cutting cleavages, groups are more polarised along ethnic, religious, cultural or linguistic gap lines [28]
The aim of this study was to assess the impact of financial development on economic performance
The need for this was called upon as Bosnia and Herzegovina has a heavy reliance on external aid for economic and political stabilization
Summary
In post-conflict societies with fewer cross-cutting cleavages, groups are more polarised along ethnic, religious, cultural or linguistic gap lines [28]. Based on the liberal peace theory, the logic of the neoliberal approach to economic development in post-conflict societies in line with economic growth [19, 40] This implies that neoliberalism is necessary for reconstructing an unstable state but broadly speaking, it is associated with peace [19]. In spite of the efforts geared by governments and world bodies to boost efficient financial sectors performance, financial markets and institutions are still failing in conflict-ridden economies (WFI, 2016). The reasons for these failures have been attributed to corporate and securities law institutions, a country’s legal origin, its trade openness, and its legacy of colonial endowments [36]
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