The market does not function independently of the political system. When two different models of institutional development of states that had an armed conflict over territory in the recent past collide, one of which does not recognize the right of the other to exist, their unresolved conflict inevitably reflects on economic cooperation.
A democratic system creates the institutional framework in which the market functions, and the rule of law, which regulates the rules of the democratic system and the free market, is the bridge between those two orders.
Economic relations between Serbia and Kosovo precisely confirm this rule. When there is no political will for institutions to provide a stable and predictable framework for cooperation, the market ceases to function according to its own logic and becomes an instrument of political conflict. In such circumstances, the economy, which could have been a factor of connection, becomes yet another arena of competition.
The imposition of tariffs of 100% in 2018 showed how quickly a political conflict can disrupt market flows. Instead of the economy mitigating political tensions, it became a means of deepening them.
The consequences of that situation were:
– drop in trade exchange,
- loss of predictability for the economy,
– increase in costs
- drop in investor confidence and turning to other countries in the region
The only benefit from the situation is reaped by the shadow economy and its main protagonists - criminals from northern Kosovo, under the control of the regime in Belgrade. The example of Serbia and Kosovo shows that sustainable economic cooperation does not depend solely on market interests, but above all on the political will needed to create institutions capable of keeping political conflicts out of economic flows.
Author: Dejan Novaković