Effects of the European financial and economic crisis in Kosovo and the Balkans: modes of integration and transmission belts of crisis in the “super-periphery”

Abstract

This paper examines the varied ways in which the Global Financial Crisis of 2008 and the eurozone crisis affected the economies of the Balkan “super-periphery”. This paper shows that economic shocks are transmitted differently based on how globalised or dependent the mode of integration of each Balkan state is with the wider European political economy. This paper finds export-dependent and investment-dependent states to have suffered the most as a result of the crisis, while remittance-dependent states such as Kosovo have suffered the impact of secondary consequences of global crisis such as rising global food prices.

Keywords:

• Balkans
• European Union
• political economy
• economic reform
• Kosovo

Acknowledgements

The author would like to thank Will Bartlett, Luca Uberti, Petrit Gashi, and two reviewers at East European Politics for their comments and suggestions. The original manuscript gained much improvement from their feedback.

Notes on contributor

Besnik Pula is a Postdoctoral Research Associate at the Center for the Study of Social Organization in the Department of Sociology at Princeton University. His research focuses on the long-term trends of institutional and economic change in eastern Europe. Research for this article was supported by a joint fellowship from the American Sociological Association and the National Science Foundation.

Notes

1. For reasons of brevity, the names “Balkans” and “Western Balkans” are used interchangeably in this paper.

2. See Bruszt and Greskovits (2009) for a case on the compatibility between dependency and semi-peripheral/semi-core development in a globalising world. The argument is consistent with the original statement on dependent development by Cardoso and Faletto (1979), which differs from Frank's (1966) views on dependency and the structural determinism of the world-systems framework proposed by Wallerstein (1979).

3. In Figure 1, axes measure differences and similarities between the categories (represented by triangles) and the similarity and difference between members (circles) and how members cluster around the categories. For instance, the figure tells us that there is higher variation between countries in terms of remittances than in terms of imports, given the distance of the former from the other categories and the clustering of most countries around imports. For a discussion of the method, see Clausen (1998).

4. IMF data indicate that while credit growth recovered after 2008–2009, rates of credit expansion in 2008–2011 are either significantly lower than in the pre-crisis period or have remained flat.

5. The trend follows that of many Central and Eastern European states with banking sectors similarly dominated by foreign-owned subsidiaries. On banking and the financial sector in post-socialist states, see EBRD (2006).

6. An exception to this is Serbia, where the average inflation rate during the period was 28.1%. See discussion below.

7. Since their highs in 2008, all the Balkan currencies have depreciated in value against the euro and the US dollar. The Albanian lek and the Serbian dinar experienced the greatest depreciation.

8. As research by the FAO shows, it is only in recent decades that there is increased coupling between food prices in poor and developing countries and prices in global commodity markets. This is a result of greater commodification of domestic agriculture, resulting from measures such the removal of subsidies to farmers, the lowering of trade barriers for agricultural imports, and policies pushing for more export-oriented agriculture which have been demanded over the last decades by international financial institutions and the World Trade Organization. The outcome is greater vulnerability of food prices and food supply in poor and developing countries to price fluctuations in global markets.

9. The correlation coefficient for food CPI in Kosovo and Serbia with no time lag (assuming the effects of import price increase reflect immediately upon consumer prices) is near perfect at 0.94. This reflects the fact that Kosovo imports most of its food from Serbia, and rising import prices impact consumer prices in Kosovo. The fact that Serbia has weathered price increases on world markets better than Kosovo is explained by the fact that Serbia relies on domestic agriculture and its local food industry to fulfil a great part of consumption needs. Serbia has also allowed the dinar to depreciate which would theoretically reduce relative prices between domestic and imported goods.

10. Indeed, a closer inspection of GDP data as published by the KSA reveals that an increase in direct government expenditures is what chiefly accounts for the fact that Kosovo avoided a recession in 2009. As pointed out, Kosovo was also helped by the fact that most of its migrants work in Germany and Switzerland. This ensured that remittances would continue to support domestic consumption and tax revenues throughout the worst of the downturn in Europe.