The economics of state fragmentation

Jo Reynaerts and Jakob Vanschoonbeek

No 547244, Working Papers of VIVES - Research Centre for Regional Economics from KU Leuven, Faculty of Economics and Business (FEB), VIVES - Research Centre for Regional Economics

Abstract: This paper provides empirical evidence that declaring independence significantly lowers per capita GDP based on a large panel of countries covering the period 1950-2013. To do so, we rely on a semi-parametric identification strategy that controls for the confounding effects of past GDP dynamics, anticipation effects, unobserved heterogeneity, model uncertainty and effect heterogeneity. Our baseline results indicate that declaring independence reduces per capita GDP by around 20% in the long run. We subsequently propose a novel triple-differential procedure to demonstrate the stability of these results. Another methodological novelty consists of the development of a two-step estimator to shed some light on the primary channels driving our results. We find robust evidence that the adverse effects of independence increase in the extent of surface area loss, pointing to the presence of economies of scale, but that they are mitigated when newly independent states liberalize their trade regime or use their new-found political autonomy to democratize.

Keywords: Independence dividend; panel data; dynamic model; synthetic control method; difference-in-difference; triple-difference; two-step approach (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-fdg
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Citations: View citations in EconPapers (2)

Published in VIVES discussion paper, 2016/52 , pages 1-78

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Working Paper: The economics of state fragmentation (2016)
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