Serbia on the path to modern economic growth

August 31, 2022 | Blog
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by Milan Zavadjil (International Monetary Fund, retired)

This blog post is based upon the author’s article (co-authored with Boško Mijatović) forthcoming in The Economic History Review.


Western economic historians have paid relatively little attention to Serbia, including the quantification of its economic performance prior to the First World War. Even the latest literature provides little information on Serbia compared with Bulgaria, Greece, and Romania, partly because of the lack of reconstructed national accounts for Serbia; for example, see Kopsidis and Schulze (2020). Serbia is included in Maddison’s work, but the data are not satisfactory. At the same time, Serbian authors, though they enjoyed significant state support during the communist period, have until recently attempted little quantitative analysis. Thus, we have little data-based understanding of Serbia’s long run economic performance prior to the First World War.


Nevertheless, nineteenth-century Serbia provides an interesting development case. At the beginning of the nineteenth century, Serbia was depopulated following centuries of conflicts. Land policy focused on allowing peasants easy access to land and generally encouraged small holdings. There was no landlessness, and large land holdings were virtually non-existent. The population expanded rapidly during the period from 1867-1910. Small landholders became a major political force. However, this development approach also resulted in decades of extensive agricultural growth through the employment of abundant labour and land.


The primary aim of our article, forthcoming in the Economic History Review, is to address an important data gap by producing Serbian GDP estimates for the period prior to the First World War. This study constructs rudimentary production-side GDP estimates for 1867, 1890, 1895, 1900, 1905, and 1910, mainly from official statistics. The choice of years is determined by the limited availability of data.

We employ the estimated GDP data to gain insight regarding growth trends and assess if, at that time, Serbia was converging with the developed countries of north-western Europe. We also examine structural factors such as sectoral transformation, productivity growth, trade openness, and urbanization to assess how advanced Serbia was towards attaining Kuznets’ ‘modern economic growth’.

We estimate that, during 1867–1910, Serbia’s economy grew by 1.85 per cent per annum, only slightly more slowly than that of north-western Europe, though substantially more slowly than that of central and eastern Europe. However, as population growth was amongst the fastest in Europe, per capita GDP grew by only 0.28 per cent per annum. Far from converging with north-western Europe, Serbia continued to fall behind. Moreover, the structural transformation of the economy proceeded slowly.

Economic development during the 19th century was shaped by state policy, which paternalistically protected small rural holdings with positive social effects (e.g. no hunger), but also with negative economic effects (e.g. homesteads and the separation of peasants from the financial market prevented investment and progress). The easily available land encouraged smallholders to cultivate it with primitive technology, expanding areas under cultivation, through an increase in the number of rural estates, continuously until the First World War. This extensive growth of agriculture was consistent with the low level of social and financial capital and resulted in a stagnation of agricultural productivity. Broad land ownership and the right to vote gave peasants influence over economic policy and ensured the maintenance of the existing economic model.

Diversifying the economy away from agriculture in Serbia was relatively slow. Industrial growth was based on less productive, labour-intensive, low-technology consumer-goods industries, such as food processing and textile manufacturing, consistent with the alignment of factor prices, i.e. cheap labour and expensive capital. Some reasons for the slow development were low urbanization; weak capital markets; lack of trust in the banks; weak infrastructure—the first railway was built only in 1884-6; the liberal trade regime between Austria-Hungary and Serbia from 1881-1904, which resulted in a flood of Austrian industrial exports to Serbia; and, finally, the threshold level of development necessary for the rapid growth of modern industrial and service sectors had not been reached.

Nevertheless, there were some reasons for optimism by the first decade of the twentieth century. A small modern sector—it consisted of large-scale industry, finance, railways, shipping, and similar sectors—grew rapidly, albeit from a small base, especially during the years from 1905-10. Industry was supported by the introduction of customs tariffs and state support for new companies. Serbia weathered the customs war with Austria-Hungary from 1906-10, finding new markets for its agricultural products and increasing industrial exports rapidly.

We will never know how soon Serbia would have achieved modern economic growth and begun to converge with the rest of Europe. Its development was interrupted by the Balkan wars and subsequently the First World War, in which the country lost approximately one-third of its population. After the First World War, it became a part of Yugoslavia, which affected its development in myriad ways.


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Kopsidis, M. and Schulze, M.-S., ‘Economic growth and sectoral developments, 1800-1914’ In M. Morys, ed., The economic history of central, east, and south-east Europe: 1800 to the present (2020).