IMPACT OF ETHNIC CLEANSING ON HUMAN CAPITAL FORMATION: EMPIRICAL EVIDENCE FROM BOSNIA-HERZEGOVINA

The main aim of this thesis is to analyze the economic consequences of ethnic cleansing in the countries affected, with particular focus on Bosnia and Herzegovina. As one of the key distinguishing characteristics of ethnic cleansing is mass displacement of people, it focuses its investigation on the impact of ethnic cleansing on the stock of human capital in the country affected. Using the framework of the analysis of brain drain developed for voluntary migration, the further analysis is divided into two parts: the first part deals with the negative consequences of ethnic cleansing for human capital through emigration of highly educated (brain drain), while the second part deals with positive reverse effects of such emigration (brain gain). This should eventually allow us to estimate the net effect of migration on the stock of human capital in the country affected by ethnic cleansing. The analysis of the brain drain caused by ethnic cleansing starts with the development of a theoretical model that explains the impact of ethnic cleansing on emigration of highly educated individuals. The model is based on the models of self-selection and amended by incorporating a ―restoration‖ hypothesis, originally developed in this thesis. This model is then tested by two different empirical studies. In the first study, a household level data from Bosnia-Herzegovina was used in order to measure the impact of different factors affecting the household‘s decision to migrate. In the second empirical study, country level data were used to measure the difference in the magnitude of brain drain between countries with different histories of conflict. The second part of the thesis provides the empirical evidence on brain gain by using two different studies. In the first study, country level data were used to analyze the possibility of the ―incentive effect‖ that increases the stock of human capital in the country as a result of migration. In the second study, household level data were used to analyze the effect of remittances inflows on the increase of human capital through increased educational investments by households receiving remittances. By providing evidence on both brain drain and brain gain effects, this thesis gives comprehensive insight into the impact of ethnic cleansing on the stock of human capital in a country. The main findings of these studies are that the negative effects are stronger, while positive effects are weaker compared to the voluntary migration. This suggests that the net effect of ethnic cleansing on human capital stock in a country is likely to be negative. In addition, the thesis offers a new theoretical model of ethnic cleansing which can also, with minor amendments, be used in the context of natural disasters induced and development induced displacement.