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The Economics of State Fragmentation - Assessing the Economic Impact of Secession

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  • Reynaerts, Jo
  • Vanschoonbeek, Jakob

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-difference 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.

Suggested Citation

  • Reynaerts, Jo & Vanschoonbeek, Jakob, 2016. "The Economics of State Fragmentation - Assessing the Economic Impact of Secession," MPRA Paper 69681, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:69681
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Reynaerts, Jo & Vanschoonbeek, Jakob, 2016. "The Economics of State Fragmentation: Assessing the Economic Impact of Secession - Addendum," MPRA Paper 72379, University Library of Munich, Germany.
    2. repec:spr:sjecst:v:154:y:2018:i:1:d:10.1186_s41937-017-0015-6 is not listed on IDEAS
    3. Thierry Madiès & Grégoire Rota-Grasiozi & Jean-Pierre Tranchant & Cyril Trépier, 2018. "The economics of secession: a review of legal, theoretical, and empirical aspects," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 154(1), pages 1-18, December.

    More about this item

    Keywords

    Independence dividend; panel data; dynamic model; synthetic control method; difference-in-difference; triple-difference; two-step approach;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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