ECONOMIC PERFORMANCE IN POST-DAYTON BOSNIA AND HERZEGOVINA: THE ROLE OF INSTITUTIONAL QUALITY AND FINANCIAL DEEPENING

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.