Effects of Political Disintegratin on Foreign Capital Requirement During Transition

Effects of Political Disintegratin on Foreign Capital Requirement During Transition

Political disintegration of a country leads to abrupt severance of existing economic ties. Internal trade flows between the regions of an undivided country become foreign trade after disintegration. The newly independent states, during their transition from political sovereignty to economic self-reliance, may find the reorientation of their economies through foreign trade particularly difficult. The adverse consequences of partition may have to be contained, at least temporarily, with the help of foreign capital. The foreign capital requirement of the newly independent countries in that case will depend on the degree of incomplete product line inherited by each of them and the post-partition level of economic cooperation among themselves. Given average success in cooperation, it is concluded that the need will be larger (and more volatile) for the countries which inherit higher degrees of incomplete product line. (JEL Classification: F15, 052)