Which Way to Boom?
Subject Economic development in Yugoslavia
Topic Developing and Transitional Economies
Key Words Foreign Investment, Foreign Trade, Privatization
News Story

In 1989, Yugoslavia was one of the wealthiest of the Balkan countries. It had been one of the most open of the Communist countries and its former leaders had encouraged industrialization. However, after 10 years of ethnic fighting, war, mismanagement and political chaos, Yugoslavia's economy is in shambles and poverty and misery have replaced what was once a comfortable living for many of the country's inhabitants. With the ouster of President Slobodan Milosevic, Western countries have started to lift economic sanctions and Yugoslav officials and foreign investors are examining ways to restore the economy.

Trade delegations from a number of Western European countries have already started discussions with Yugolavia, one of the Balkan's largest markets, looking for investment opportunities and new trade links. Yugoslavia has eight million people plus another two million Serbs that have fled the country, but may return. Labor is plentiful, wages are low, and Yugoslavia has good access to Europe and the Balkans via rail, river and highway routes.

Yugoslavia's new president, Vojislav Kostunica, has made economic development a priority. The administration has pushed for privatization and is considering placing government-owned electric, oil and gas companies, cement factories and the government's 51 percent stake in its telecommunications firm up for sale. The European Union has promised loans and grants for rebuilding, and firms are discussing with the government the rebuilding of bridges and roads.

A key factor in determining whether Yugoslavia's economic development program will succeed is whether the government can successfully persuade regional parliaments in Serbia and Montenegro to endorse these economic reforms. Yugoslavia's past history of being open to trade should also help it avoid some of the problems that have plagued development in other former Communist countries.

(Updated December 1, 2000)


Using a production possibilities curve, illustrate the affects of a war on the country's ability to produce. What happens to GDP, employment and income?

2. Economic sanctions imposed upon Yugoslavia virtually eliminated trade between this country and the rest of Europe. What is the impact of an elimination of foreign trade on a country's income and welfare?
3. Yugoslavia is hoping to attract foreign investment. What is the impact of a, increase in investment for the economy? Illustrate on your diagram and explain.
Source Peter S. Green, "In Yugoslavia Misery, Investors Knock," The New York Times, November 17, 2000.

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