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

Reynaerts, Jo and Vanschoonbeek, Jakob (2016): The Economics of State Fragmentation: Assessing the Economic Impact of Secession - Addendum.

Abstract

Reynaerts and Vanschoonbeek (2016) propose a semi-parametric procedure to estimate the economic impact of secession, finding empirical evidence that declaring independence significantly lowered per capita GDP in newly formed states. To demonstrate that these findings appear to hold irrespective of the estimation procedure employed, this addendum formulates a parametric approach to estimate the independence dividend. Our preferred parametric specifications comprise a dynamic, quasi-myopic model of per capita GDP dynamics that controls for country and year fixed effects, the rich dynamics of GDP, finite anticipation effects and a vector of alternative growth determinants. The results indicate that declaring independence reduces per capita GDP by around 15-20% in the long run. These results are qualitatively confirmed when we use non-regional secession waves to instrument for local incentives to secede.

• Item Type: MPRA Paper
• Language: English
• Keywords: Independence dividend; panel data; dynamic model; generalized method of moments; bootstrap-based bias correction; instrumental variable regression
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C14 - Semiparametric and Nonparametric Methods: General; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H77 - Intergovernmental Relations ; Federalism ; Secession; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence

References

Acemoglu, D., Suresh, N., Restrepo, P., & Robinson, J. A. (2014). Democracy Does Cause Growth. NBER Working Paper No. 20004 , 1-66.

Alesina, A., & Rodrik, D. (1994). Distributive Politics and Economic Growth. Quarterly Journal of Economics, 109 (2), 465-490.

Alesina, A., Spolaore, E., & Wacziarg, R. (2000). Economic Integration and Political Disintegration. American Economic Review, 90 (5), 1277-1296.

Arellano, M., & Bond, S. (1991). Some Tests of Specification for Panel Carlo Application to Data : Evidence and an Employment Equations. The Review of Economic Studies, 58 (2), 277-297.

Arellano, M., & Bover, O. (1995). Another Look at the Instrumental Variable Estimation of Error-Components Models. Journal of Econometrics, 68 (1990), 29-51.

Bolton, P., & Roland, G. (1997). The Breakup of Nations : A Political Economy Analysis. Quarterly Journal of Economics, 112 (4), 1057-1090.

Dahl, M., Gates, S., Hegre, H., & Strand, H. (2013). Why Waves? Global Patterns of Democratization, 1820-2008. PRIO Working Paper, 1-41.

De Vos, I., & Ruyssen, I. (2015). Bootstrap-based Bias Correction and Inference for Dynamic Panels with Fixed Effects. Stata Journal(forthcoming), 1-31.

Everaert, G., & Pozzi, L. (2007, apr). Bootstrap-Based Bias Correction for Dynamic Panels. Journal of Economic Dynamics and Control , 31 (4), 1160-1184.

Fazal, T., & Griffiths, R. (2008). A State of One's Own : The Rise of Secession Since World War II. The Brown Journal of World Affairs, 15 (1), 199-209.

Malani, A., & Reif, J. (2015). Interpreting Pre-trends as Anticipation: Impact on Estimated Treatment Effects from Tort Reform. Journal of Public Economics, 124, 1-17.

Nickell, S. (1981). Biases in Dynamic Models with Fixed Effects. Econometrica, 49 (6), 1417-1426.

Papke, L. E., & Wooldridge, J. M. (2005). A Computational Trick for Delta-method Standard Errors. Economics Letters, 86 (3), 413-417.

Persson, T., & Tabellini, G. (1994). Is Inequality Harmful for Growth? American Economic Review, 84 (3), 600-621.

Qvortrup, M. (2014). Referendums on Independence , 1860 - 2011. The Political Quarterly, 85 (1), 57-64.

Reynaerts, J., & Vanschoonbeek, J. (2016). The Economics of State Fragmentation: Assessing the Economic Impact of Secession. VIVES Discussion Paper 52 , 1-57.

Roodman, D. (2006). How to Do xtabond2 : An Introduction to Difference and System GMM in Stata 1. Center for Global Development Working Paper No. 103 , 1-42.

Spencer, M. (1998). Separatism: Democracy and Disintegration. Maryland: Rowman & Littlefield Publishers.

Stock, J. H., & Watson, M. M. (2012). Introduction to Econometrics (Third ed.). Essex: Pearson Education Limited.

Venables, A. J. (2010). Economic Geography and African Development. Papers in Regional Science, 89 (3), 469-483.

Wooldridge, J. M. (2009). Introductory Econometrics: A Modern Approach (4th ed.). South-Western.

World Bank. (2015). World Development Indicators. Retrieved from http://data.worldbank.org/data-catalog/world-development-indicators