The economic effects of political disintegration: Lessons from Serbia and Montenegro

Abstract

Is there an economic premium from state independence? We shed light on this question by analysing the unique historical case of the peaceful separation of Serbia and Montenegro in 2006 – the last fully recognised internationally state-disintegration on European soil. Using the synthetic control approach, we find that independence for the seceding country (Montenegro) had a sizeable but seemingly transitory positive effect, boosting GDP per capita in the period immediately following independence, but with gains slowly evaporating in the longer period – which we attribute partly to increased vulnerability of the newly independent state to fluctuations in the international economic environment. In contrast, for Serbia we find no evidence of an independence dividend. We postulate that, at least in part, this asymmetry of effects may be linked to divergences in economic sentiment between the seceding entity and the one ‘left behind’.