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ECO 315/Dr. Mitchell/Spring 2002
Lecture3-Bosnia
1
Bosnia
Geography
See UN maps.
Recent Political History
Part of the former Yugoslavia. When Croatia and Slovenia declared independence, Bosnia
held a referendum on its own independence. Bosnia declared independence in 1992. At that
time, Bosnia had 3 primary political groups: Bosnian Croats, Bosnian Serbs, and Bosnian
Muslims (now called Bosniacs).
Serbs in Serbia (part of Yugoslavia) and Bosnian Serbs began a war to re-unite Serbs and
control Bosnia. This war was between the Serbs and primarily the Muslims. This touched off an
additional conflict between the Muslims and the Croats.
The war itself was especially vicious. “Ethnic cleansing” was invented here. Several officers
have since been convicted of crimes against humanity, although many remain at large.
Dayton Peace Agreement, December, 1995. Halted fighting at the front lines.
Created two entities: Federation of Bosnia-Herzegovina (Muslim-Croat) and the Republic of
Srpska (Serbian). Above this is a “state” government of Bosnia and Herzegovina. Note:
Currently there is no political boundary between Bosnia and Herzegovina.
The Dayton Agreement is currently being enforced by the Office of the High Representation
(UN) and by a force of 20,000 international troops under NATO command (SFOR).
Past Political History
The Croats (Roman Catholic) and Serbs (Orthodox) claim they are separate “nations”,
although evidence suggests that they are from the same ethnic origin. This region has long been
characterized by invasions and political turmoil. Often, the general populace has shown a
willingness to change religions in order to achieve political and economic success.
The area was once part of the Ottoman empire, and this accounts for the Muslim population.
It was conquered by the Austro-Hungarian empire in the 19th century. Tension between the
Austro-Hungarians and the Serbs led to the opening of WWI.
Tito, a communist, emerged from WWII as the leader of what became Yugoslavia
(Macedonia, Serbia, Croatia, Slovenia, Bosnia and Herzegovina, Montenegro)
Socialist years
The economy was mostly industrialized, with large, state-owned factories.
There was some state-owned agri-business, but most agriculture was done on small privatelyheld plots, often to supplement income from industry.
ECO 315/Dr. Mitchell/Spring 2002
Lecture3-Bosnia
2
Tito saw the mountainous areas of Bosnia as the perfect place to locate weapons factories,
because they would be well within the interior and easy to defend. Many weapons were
produced and stockpiled here.
Good education system, high literacy rates and strong engineering skills.
Adequate health care system, albeit distorted toward “major medical” needs with a lack of
access to good primary care.
This was one of the poorest areas of the former Yugoslavia.
At War’s End
About half of population of 4.4 million had moved, either international refugees (1.2 million)
or internally-displaced persons (IDPs).
GDP about 20 percent of pre-war.
Only 10 percent employment.
Population survived on international aid.
80 percent of capital stock was destroyed, either from direct war damage or due to neglect.
Throughout large areas of conflict, the public infrastructure of roads, bridges, electric supply,
water supply, and heating was mostly destroyed. Again, partly due to direct damage, much due
to neglect.
By the End of 1999
Over 800,000 remain internally-displaced. Many of the international refugees are expected
to remain abroad, but about 324,000 are potential returns.
The population, once ethnically mixed, is now partitioned according to the Dayton line.
Entire villages that were once ethnic minorities are abandoned. Many rural people now live in
cities.
Reconstruction of infrastructure is nearly complete, due to massive amounts of international
assistance.
There is extensive landmine contamination.
The unemployment rate is about 30 percent.
GDP is about 60 percent of pre-war GDP. Classified as a lower-middle income country
($761-$3,030 GDP per capita, per year).
Manufacturing output remains low. Firms must find new products to produce, and new
markets.
ECO 315/Dr. Mitchell/Spring 2002
Lecture3-Bosnia
3
Forces Affecting Bosnia-Herzegovina
Localization
This force has been taken to the extreme in Bosnia & Herzegovina. In fact, it could be said
that “localization” explains the war, in the sense that each ethnic group insists on as much selfgovernance as possible. Each ethnic group has its own president. This is evidence that there is a
strong desire feel represented in government. There are two entities, divided along ethnic lines.
Again, this shows a refusal to be responsible for other ethnic groups, one of the negative
characteristics of localization. Within the Federation, there are 12 cantons, and even major tasks
of governments are assigned to the cantons. The governments are unable to take advantage of
economies of scale in health insurance, for example.
Urbanization
Before the war, there was a trend toward urbanization. The war and the resultant IDPs have
greatly increased this trend. People have come to the cities for personal safety, and are working
as waitresses and taxi drivers, for example. For many of them, there is little immediate prospect
of employment should they return to their villages. Surveys indicate that many believe only the
old people will return. The young will stay in the cities.
Globalization
At present, the force of globalization seems to be passing BH by. The rapidly falling costs of
sharing information and transport did nothing to prevent the tragedies of ethnic cleansing and the
war.
BH has an opportunity to take advantage of this force, though, as it begins to recover from
the war and complete its transition to a market economy. There are opportunities to become part
of the world-wide production network. Its high level of education and technical skills make it
well-placed to succeed.
Free Trade (Static & Dynamic Issues)
Bosnia is fairly open to international trade already. Instead of transitioning from a
protectionist environment to a free trade one, Bosnia’s transition is to a market economy. As it
builds a new capital stock, market forces will be allocating those resources to take advantage of
world markets.
It is anticipated that Bosnia will be able to export technical services, such as engineering
services.
Bosnia is looking forward to a chance to join the European Union.
Free Financial Flows
The legacy of a socialist regime is a lack of a market-oriented banking system and few
financial markets. This puts Bosnia in a more difficult position than some other developing
countries. They are making progress in this direction.
ECO 315/Dr. Mitchell/Spring 2002
Lecture3-Bosnia
4
Countries such as Croatia and Slovenia can expect large inflows of foreign direct investment,
taking advantage of the relatively education workforce. Bosnia is disadvantaged, however, by its
recent violence and the continued necessity for peacekeeping forces. Its complicated
government structure and lack of transparency is unlikely to attract investment at this time.
Environmental Issues
At present, the greatest environmental concern is landmines and UXOs (unexploded
ordinances). These prevent the development of the tourism industry, for example.
Also concerns of pollution from old “dirty” manufacturing processes.
Agglomeration
The socialist system had directed the formation of an agglomeration in the munitions
industry. It remains to be seen whether this will re-start, or whether other agglomerations will
materialize.