New Economic History of Yugoslavia, 1919 - 1939: Industrial Location, Market Integration and Financial Crises

New Economic History of interwar Yugoslavia is uncharted territory. Combining historical data with modern econometrics the present thesis explores how economic development of Yugoslavia - a newly established and diverse country - was shaped by industrial location, market integration and financial crises. The results are relevant for the present as the least economically developed part of Europe today is comprised mostly of Yugoslav successor states. What determined the location of industry in interwar Yugoslavia? Using panel data econometrics and a new dataset which covers eight Yugoslav regions and ten industries over a period of eight years industrial location is explained by a model in which Heckscher-Ohlin (HO), New Economic Geography (NEG) and Path Dependence theories are captured by interaction variables. Econometric results show that all three of the tested theories had a role to play. History matters in addition to HO and NEG type forces in determining the location of industry. Were Yugoslav markets integrating during the interwar? If so, what were the drivers? Analysis of a novel panel data set of commodity prices observed over ten cities during the period from 1922 to 1939 shows that market integration increased during the interwar. City-pair commodity market integration is modeled using a set of trade cost. The progress of market integration during the interwar is explained by institutional and infrastructural advancements that reduced transaction and transport costs. Cultural differences did not impede market integration. Yugoslavia set out on a process of economic integration that was not hampered by its diversity. Did Yugoslavia and six other East European countries experience financial crises during 1931? If so, what were the main contributing factors? Newly gathered high frequency data series on indicators of currency, banking and sovereign risk crises are explored using an analytical narrative. Worsening of economic fundamentals, drop in international credit and global demand, as well as international transmission led to financial crises in Eastern Europe in 1931. Completely avoiding financial crises was elusive but the most economically developed country was the least affected. This pioneering New Economic History study of interwar Yugoslavia leads to a broad conclusion that present day economic backwardness and regional differences in economic development between Yugoslav successor states are not new and do not stem from a historical lack of market integration but can partly be explained by regionally uneven industrial development and a long history with financial crises.