Rural Infrastructure and the Role of Social Capital

Transcription

1 The Road to Economic Development in Serbia Maaike Runia

2 Rural Infrastructure and the Role of Social Capital The Road to Economic Development in Serbia Student Maaike Runia Master Thesis ECH Regional Economics Wageningen University Supervisor Prof. Dr. W.J.M. Heijman 2

3 Preface Serbia is preparing itself for accession to the European Union (EU). The country has to reach economic, social and political standards comparable to other EU members. During my stay in Serbia I saw a lot of signs near infrastructure construction sites indicating that the EU financed the project. It made me think about investments in the development of infrastructure, especially in rural areas. What are the benefits of a good road network? How well developed is the Serbian infrastructure and can the level of development be related to the economic performance of a region? Are other factors like social capital influencing the relation between infrastructure and the economy? This research gave me the chance to look in more detail at the development of the Serbian rural infrastructure and find answers to my questions. In this preface, I would like to take the opportunity to thank Wim Heijman, my supervisor from Wageningen University, for his support with writing this thesis. Special thanks go to Zorica Vasiljevic and Natalija Bogdanov from the University of Belgrade, who gave me the chance to do part of this research in Serbia and who made my stay very pleasant. Maaike Runia Wageningen, August

4 Abstract Serbia s economy is lagging behind because of a turbulent history of wars and conflicts followed by the impact of the global economic crisis. Investment in infrastructure is seen as one of the solutions to get the economy back on track. The starting point of this research is the presumption that infrastructure development in Serbia could be the key to economic growth. As the quality of the road network in Serbia remains weak, this research looks at the contribution of well-developed infrastructure to economic development. Furthermore, it discusses the role social capital plays in the relation between infrastructure and economic growth. The research focuses on rural districts in Serbia. It compares the districts on the basis of data about the three categories economic performance, infrastructure development and social capital. Outcomes of the research are an analysis of the relations between the three categories and a comparison of the Serbian districts. 4

5 Content Chapter 1. Introduction Background Goal of the Research Research Questions Methodology Content...11 Chapter 2. Rural Development The Definition of Rural Areas The Concept of Rural Development Conclusion...15 Chapter 3. Infrastructure The Definition of Infrastructure The Importance of Infrastructure Conclusion...19 Chapter 4. Social Capital The Definition of Social Capital Social Capital and Economic Development Social Capital in Rural and Urban Areas The Measurement of Social Capital Conclusion...26 Chapter 5. The Case of Serbia General Facts Serbia s History and Political Situation Serbia s Economy Serbia s Infrastructure Serbia s Social Capital

6 5.2. Rural Regions in Serbia Conclusion...34 Chapter 6. Methodology The Research Strategy Ranking the Districts The Role of Social Capital The Research Areas The Data Descriptive Statistics Conclusion...39 Chapter 7. Comparison of the Districts Economy, Infrastructure and Social Capital Economic Performance Infrastructure Development Social Capital Ranking the Districts Comparison with the Theory Conclusion...47 Chapter 8. Infrastructure, Economy and Social Capital Correlations Economic Development and Infrastructure Economic Development and Social Capital The Hypothesis Comparison with the Theory Conclusion...51 Chapter 9. Conclusion and Discussion Conclusion Discussion Practicality

7 Methodology...55 References...57 Annex I...61 Annex II

8 List of Figures Figure 4.1 Definition of social capital p. 21 Figure 4.2 The different types of capital p. 23 Figure 5.1 Map of the Republic of Serbia p. 27 Figure 5.2 Real GDP growth rate p. 30 Figure 5.3 Total unemployment rates p. 31 Figure 5.4 Four types of rural areas in Serbia p. 34 Figure 6.1 Areas included in this research p. 37 Figure 6.2 Total area p. 38 Figure 6.3 Total population p. 39 Figure 7.1 GDP per capita p. 40 Figure 7.2 Net wages p. 41 Figure 7.3 Unemployment per 1000 inhabitants p. 41 Figure 7.4 Road network p. 42 Figure 7.5 Kilometres of road per km 2 p. 43 Figure 7.6 Roads with modern surface p. 43 Figure 7.7 Election turnouts p. 44 Figure 7.8 Ranking the districts of Serbia p. 46 Figure 8.1 Correlation between GDP per capita and modern roads of total roads p. 49 Figure 8.2 Correlation between economic development and voters p. 50 List of Tables Table 5.1 Gross Domestic Product per capita p. 30 Table 7.1 The ranking of the districts p. 45 8

9 Chapter 1. Introduction Chapter 1 introduces the research Rural Infrastructure and the Role of Social Capital: The Road to Economic Development in Serbia. Section 1.1 discusses the background of the topic. Section 1.2 describes the goal of this research. The research questions are discussed in section 1.3 and the methodology in section 1.4. The chapter concludes with a description of the following chapters in section Background At this moment, Serbia is preparing itself for membership of the European Union (EU). The country therefore has to meet the requirements set by the EU and reach EU standards on political, social and economic fields. Serbia s economy is lagging behind compared to the EU countries and investment in infrastructure, as a part of rural development, is seen as one of the solutions. At this moment, Serbia s poor road network is especially affecting the rural areas. Improving the infrastructure in Serbia could be the key to economic success and integration with the EU countries Goal of the Research This research focuses on rural districts in Serbia. It compares the districts on the basis of data about the economic performance, the infrastructure development and the level of social capital. Serbia is an interesting country to look at, mainly because of its history as a former Yugoslavian country and its future accession to the EU. The status of Kosovo is of major debate, therefore Kosovo will not be included when talking about Serbia. The research is limited to rural areas first of all because high unemployment levels and poverty in rural areas in Serbia cause migration to the cities. Depopulation takes place in the rural areas, leading to economic and social problems in these areas as well as in the big cities (see section 5.2). Another reason for focusing on rural regions is that rural development is an important part of the EU legislation and a large budget is spent on rural policies. Already in the pre-accession period Serbia receives financial aid for rural development (see Annex I). As will be discussed in chapter 3, infrastructure is an important part of rural development. It is thought that infrastructure development contributes to economic development. As the quality of the road network in Serbia remains weak, it is interesting to look at infrastructure and its relation with economic development. 9

10 The aim of this research is to present an overview of the level of development in rural Serbia with a focus on infrastructure. The research looks at the relation between infrastructure and economic development and the possible influence of social capital. The outcomes can complement to the literature already existing about rural areas in Serbia and can be useful in the pre-accession period of the country. Furthermore, the outcomes will contribute to the discussion about the importance of investing in rural infrastructure Research Questions For this research a hypothesis and research questions are composed. The hypothesis to be tested is the following: The development of rural infrastructure will only contribute to economic development if there is a high level of social capital. The research questions below will be answered in the different chapters, in order to accept or reject the hypothesis: What is the importance of good infrastructure for a country like Serbia? What role could social capital play in the development of rural infrastructure according to the literature? What are the characteristics of rural areas in Serbia, and specifically, what is the situation concerning rural infrastructure and social capital? Which districts perform best on economic development, infrastructure and social capital and which districts score low on these categories? Is there a relation between the development of infrastructure and the economic development in the Serbian districts? Is there a relation between the level of social capital and the economic development? Is there a connection between the level of social capital and the contribution of good infrastructure to the economic development? 1.4. Methodology The first three research questions as mentioned in the previous section will be answered on the basis of literature reviews. Answers to the last four research questions will be based on data analysis. For testing the hypothesis, a statistical analysis of relevant data will be carried out. The main source of data is the Statistical Office of the Republic of Serbia. The data is being analysed in the statistical program SPSS. 10

11 1.5. Content This thesis discusses rural development in Serbia with a focus on infrastructure. The first part, Chapters 2, 3, 4 and 5, gives a theoretical overview. The second part, Chapter 6, 7 and 8, describes the data analysis. In Chapter 9 a conclusion and discussion are given. Chapter 2. Rural Development: Chapter 2 discusses rural development. First, a definition of rural areas will be given. The second part of the chapter describes the concept and history of rural development. Chapter 3. Infrastructure: This chapter describes the concept of infrastructure. Because different sources use very broad definitions of infrastructure, the first part of this chapter will define the concept. In the second part of the chapter, the importance of well-developed infrastructure for economic development will be discussed. Chapter 4. Social Capital: Various literature exists about social capital and its meaning. Chapter 4 starts with a short overview of the different definitions and places social capital in the light of other forms of capital. Next the relationship between social capital and economic development is described. This is followed by a discussion about the differences between social capital levels in urban and in rural areas. The second part of the chapter discusses the variables that can be used to measure social capital. Chapter 5. The Case of Serbia: Chapter 5 starts with a general description of Serbia: its geographical location, its history and the political and economic situation. This is followed by a description of Serbia s infrastructure and social capital. The second part of the chapter discusses Serbia s rural areas. Chapter 6. Methodology: Chapter 6 describes the methodology used for the data analysis. First the research strategy is explained, followed by a description of the research areas and how they are selected. The second part of the chapter describes the data collected and shows some preliminary outcomes of the data analysis. Chapter 7. Comparison of the Districts: In this chapter the districts selected as research areas are compared to each other on the categories economy, infrastructure and social capital. The different variables belonging to these categories are discussed on the basis of graphs. In the second part of the chapter the districts are being ranked according to their performance on these categories. Next to this the outcomes are compared with the theory described in previous chapters. 11

12 Chapter 8. Infrastructure, Economy and Social Capital: Chapter 8 discusses the statistical data analysis. The correlations between infrastructure, economic development and social capital are tested. The outcomes are compared with the theory. Chapter 9. Conclusion and Discussion: The final chapter of this thesis gives a conclusion of the findings in the previous chapters and answers the research questions. Next to this, it discusses the shortcomings of this research and how they could be solved. The chapter also gives suggestions for further research. 12

13 Chapter 2. Rural Development Chapter 2 discusses rural development. It starts with a description of rural areas in section 2.1. Section 2.2 describes the concept of rural development and its policies, followed by a short conclusion in section The Definition of Rural Areas Rural development and its policies concern the rural areas in a country or region. When defining rural areas, population density and the amount of inhabitants of villages are widely used criteria. The most common description of a rural region is that of a territorial unit with a lot of open space and a few small or medium sized settlements, further characterized by low population density and a regional economic structure (Bogdanov, 2008). A methodology for categorizing rural areas that is often used, also by the EU, is the one made by the OECD in The OECD examines first the local units or communities and on the basis of that the regions are categorized. A community is rural when there are less than 150 inhabitants per square kilometre. Subsequently, a region is Predominantly Rural (PR) when over 50% of its population is living in a rural community. When 15% to 50% of the population lives in a rural community the region is defined as an Intermediate Region (IR), and with less than 15% of the people living in a rural unit the region is Predominantly Urban (PU). In 2005 the OECD added two criteria because of difficulties in defining areas with urban centres, an urban centre in this case being a local unit with over 150 people per square kilometre and at least inhabitants. The first criteria is: when there is an urban centre in a predominantly rural region with more than inhabitants representing over 25% of the regional population, this region will be re-classified as intermediate. Secondly, if this urban centre has over inhabitants and is located in an Intermediate Region, it is re-classified as Predominantly Urban (EU, 2009) The Concept of Rural Development In general, rural development is thought to be necessary for reducing the differences in social, economic and cultural levels between regions. Rural development can increase the incomes of the rural population and improve the quality of life, by that also tackling the problem of migration to the city in search for better living standards (Peševski, 2002). Policies on rural development generally have the goal of increasing the productivity of the rural area. Ways to increase the productivity are for example better education or investing in research. But also indirect instruments focused on production factors are often used. An example is investment in infrastructure (Burrell and Oskam, 2005). 13

14 Rural development policies in the EU date back to the seventies. Since the early years of the EU harmonious economic and social development has been one of the main objectives. Overcoming the differences in development between countries and regions was one of the reasons to establish a common market. But after the enlargement of the union with especially the southern European countries, regional disparities became more apparent and a structural policy was needed. In 1975, the European Regional Development Fund (ERDF) was introduced, among other funds with each their own goals on development and living standards. Today, structural policy is after the common agricultural policy the biggest beneficiary of the EU s budget (Europa, 2010a). The paper Indicators on Rural Development and Agriculture Household Income by the Economic and Social Commission for Western Asia (ESCWA, 2009) describes technology, society, ecology and economy as components of rural development. According to this paper, there are four criteria for a successful rural development policy. First of all, this policy should stimulate rural areas to maintain their population size. As described earlier in this paragraph, rural areas face a declining population due to migration to the city. Reasons for this migration trend are rural unemployment and the search for better living standards. The two following criteria are related to this. A successful rural policy should encourage diversification of the rural economies and create jobs in other sectors. This means that the primary sector should not be the only source of income. Another goal that rural development policies must strive for according to the ESCWA, is to keep in mind the urban poverty and unemployment rates and try to keep the rural rates at a level not worse than the urban rates. The last criterion states that rural development policies should stimulate easy access to rural areas and provide a minimum set of services in order to be successful (ESCWA, 2009). Gustáv Nemes (2005) gives the following definition of rural development: Integrated rural development is an ongoing process involving outside intervention and local aspirations; aiming to attain the betterment of groups of people living in rural areas and to sustain and improve rural values; through the redistribution of central resources, reducing comparative disadvantages for competition and finding new ways to reinforce and utilise rural resources. He states that rural areas need protection because of the comparative disadvantages they face from developing in a different way than urban areas. According to Nemes, rural development is therefore aiming at overcoming these comparative disadvantages. He makes a distinction between two types of disadvantages. The first one is the resource-type: rural areas are not able or do not have the necessary resources to produce goods and services that can be sold on the global market. These resources are of a financial, human or institutional kind. The second type is the access-type disadvantages. As Nemes describes it, 14

15 these disadvantages result from underdevelopment of different infrastructures, resulting in limited communication of people, products, money and information. The access-type disadvantages complicate three types of access to and from rural areas: physical, economic and political access (Nemes, 2005). John Bryden (2002) talks in his paper Rural Development Indicators and Diversity in the European Union about the role of agriculture in rural development. To some people agriculture equals rural development and rural development indicators should be only about agriculture. To others agricultural policies are just one part of policies that affect rural development, among policies for social welfare, infrastructure, education, energy and more. One reason why rural development is strongly connected with agriculture, is that agriculture is a very common means of income in rural areas (Bryden, 2002) Conclusion In the previous sections, rural areas and rural development are discussed. Whether an area is considered rural or not, usually depends on the size of settlements and population density. Rural development policies are aimed at reducing differences in social, economic and cultural levels between regions. The policies concern increasing productivity and living standards among other things. 15

16 Chapter 3. Infrastructure This chapter discusses the concept of infrastructure. Section 3.1 goes into detail about the definition of infrastructure, while section 3.2 describes the importance of infrastructure for economic growth and rural development. Section 3.3 concludes with an overview of the previous sections The Definition of Infrastructure Infrastructure development is one aspect of rural development policies. Different sources give different definitions of infrastructure. The definition of the UNDP (2008) is very broad, describing four key types of infrastructure that have an influence on human development: energy, transport, telecommunication and the environment. Also the interpretation of the World Bank (2010a) is very extensive. Indicators used by the World Bank to describe infrastructure range from rail lines and electric power consumption to internet subscribers and daily newspapers. Also different dictionaries define infrastructure in a broad way and subjective to interpretation. For example, the Oxford Dictionary defines infrastructure as the basic physical and organizational structures (e.g. buildings, roads, power supplies) needed for the operation of a society or enterprise (Oxford, 2010). Cambridge Dictionary s definition is in many ways interpretable: the basic systems and services, such as transport and power supplies, that a country or organization uses in order to work effectively (Cambridge, 2010). The Dutch dictionary Van Dale is more specific, describing infrastructure as the total of roads, railways, waterways, ports, airports, electric equipment, cables etcetera (Van Dale, 2010). This definition corresponds with most literature. Roads, bridges, railways, airports, water and sewer systems, the so-called physical infrastructure, are often mentioned when describing infrastructure. Differences arise in the social aspects. Next to the physical infrastructure some sources also consider hospitals, schools, prisons and public buildings as infrastructure (e.g.: CRS, 2004 and PriceWaterhouseCoopers, 2010). Gustáv Nemes (2005) divides the concept of infrastructure into three categories: physical, economic and policy access. The kind of infrastructure that concerns the movement of people, goods and information, for example roads and telecommunications, is physical access. Infrastructure that encourages the movement of money and business, like financial services, concerns economic access. Finally, policy access can be hindered by the lack of public and civic institutions. 16

17 This research will limit the definition to physical infrastructure, in specific roads. Different kinds of roads exist. First of all there are motorways, which are specifically made for motor traffic and are also indicated as such, which have separate carriageways for both directions of traffic and do not cross with other roads, footpaths or railways. Next to this, there are highways, which are main or national roads of high quality, usually provided by the national government. The roads that lead to the highways are secondary or regional roads. A further distinction can be made in urban and rural roads. This last category is of main importance for this research and is defined as roads outside urban areas, which do not fall within the categories mentioned above (IRF, 2009) The Importance of Infrastructure I Different sources recognize the importance of good infrastructure for economic development. For example, Heijman and Van der Heide (2000) state that infrastructure in general and accessibility in particular is an important aspect of economic growth (Heijman and Van der Heide, 2000). When a region has bad roads it is harder to deliver inputs on time and to sell products from the land. This also leads to higher transaction costs. When there is a lack of well-developed infrastructure, the integration between the rural and urban areas is impeded. As a consequence, rural areas and their inhabitants are isolated (Peševski, 2002). An important remark is that some of the following sources define infrastructure in a broader way than is done in this research. As the definition used here is part of the more extensive interpretations, the statements about the importance of good infrastructure can also be considered relevant for infrastructure as applied in this research. Zhu, Van Ommeren and Rietveld (2009) performed a welfare analysis on the benefits of infrastructure improvement in the case of an imperfect labour market. They found that in their model overall unemployment falls when infrastructure is improved. Next to this, the transport costs are lowered, leading to an increase of interregional trade and specialization, which in the end will improve the welfare in both regions. A sensitivity analysis further showed that an economy with poor infrastructure has more indirect welfare impacts than an economy with good infrastructure (Zhu et al., 2009). The Human Development Report of the UNDP (2008) stresses the important contribution infrastructure development can make to human development. According to the UNDP, the development of infrastructure will stimulate freedom of movement and technological outreach. A modern road network is an engine for economic development and reduces regional inequalities. Moreover, the UNDP states that modern infrastructure is also a prerequisite for the integration of the region into the European and global mainstreams. 17

18 Gustáv Nemes (2005) writes that access-type disadvantages like poor infrastructure are recognised as one of the most important causes of backwardness and social and economic problems. Yet he stresses that investment in physical access should go hand in hand with development of resource-type disadvantages, like the financial system (see also section 2.2). If not, inequality and uneven development will subsist. According to Nemes, physical access is impeded by poor physical infrastructure like roads and telecommunication. This makes the movement of people, goods and information more difficult. Nemes lists a few disadvantages of a poor road network. First of all, poor roads make it difficult to have a job in another region because of the daily travel. Goods produced cannot easily be transported to a market outside the rural region. Besides, tourists will not find their way to the region and the region will not be as attractive for investments from outside. The European Union Road Federation (ERF) (2010) describes on her website that efficient road networks are the backbone of the socio-economic model. Roads create employment and economic growth as well as mobility for citizens. The ERF states that [ ] long-term economic growth is closely linked to the infrastructures choice and to the capacity to implement a viable, fair and sustainable mobility. The ERF further says that roads stimulate social integration, because it brings people closer together and regions which are not favourably located are better accessible. The ERF concludes with the following statement: The ERF firmly believes that roads are an undeniable source of socio-economic welfare and will continue playing a dominant role in the transport of goods and people well into the XXIst century. The ERF calls for a "new deal" in European transport policy that reflects the contribution of roads to our lives and allows transport modes to compete under fair conditions. (ERF, 2010). Javier Escobal (2005) concludes in his PhD thesis The Role of Public Infrastructure in Market Development in Rural Peru that investment in rural infrastructure can be critical to reduce transaction costs and to improve market integration. This will lead to a greater market efficiency, which will have an impact on the growth of rural incomes. Findings in his research, based on data from Peruvian rural areas, show that transactions costs are noticeably higher for producers who only have access to the market via non-motorized roads. In short, better rural roads can lower transactions costs and thereby improve the incomes of the rural poor. Besides, an improved road network will allow rural households to also gain income from nonagricultural sectors, mostly wage-employment sources. Finally, Escobal recommends policy makers to increase the budget for rural infrastructure investment, but he notes that infrastructure development should go hand in hand with institutional development (Escobal, 2005). 18

19 3.3. Conclusion Infrastructure in this research is defined as the road network (motorways, highways, secondary roads and rural roads). Good infrastructure is generally described as very important for economic growth and rural development. The following points are mentioned as positive effects of infrastructural development: Improved access to market/ lower transaction costs/ more trade with other regions/ higher income rural population Lower regional inequalities/ less isolation of rural areas/ more social integration More investments in the region/ income from tourism Job creation/ lower unemployment/ opportunity to commute or find job in nonagricultural sector Freedom of movement/ mobility for citizens 19

20 Chapter 4. Social Capital Chapter 4 explains the concept of social capital. Section 4.1 describes different views on social capital, its importance and the differences between social capital in urban and in rural areas. Section 4.2 discusses variables that can be used to measure levels of social capital in a society. A short conclusion is given in section The Definition of Social Capital Imagine you need a job. One of the first things people do in this case is to ask friends and relatives if they know about any vacancies (Putnam, 2000). Your brother finds you the perfect job, but it is in another city so you do have to move. When the day comes you are moving into your new apartment, your friends help you put all your belongings in a truck and drive it to your new home. You thank them by taking them to the restaurant a new neighbour recommended you. The next day is your first day at work. Your colleagues want to make you feel comfortable and want to get to know you better, so they organize a lunch. You meet some nice people at your new company who in the future could help you with your work. The example above shows the importance of social networks and how they make our lives easier and more productive. Without your brother, you would not have the job. Without your friends help, moving to a new apartment would be a daunting task. Without your colleagues organizing a lunch, you would not have gone to one of your fellow workers for a favour the next day. As Hanifan already said in 1916, The individual is helpless socially, if left to himself (In: Putnam, 2000). Hanifan was the first to write about the influence of social ties as social capital. In later years, researchers from different fields of work independently came up with the same idea of social capital. Today, many different approaches of social capital exist and even more literature (Putnam, 2000). For example, Grootaert and Van Bastelaer (2002) describe the social capital of a society as the institutions, the relationships, the attitudes and values that govern interactions among people and contribute to economic and social development. Beekman et al. (2009) define social capital as the glue that holds society together, in the form of trust, reciprocity and exchanges, social networks and groups. Fukuyama gives the following definition: Social capital can be defined simply as the existence of a certain set of informal rules or norms shared among members of a group that permits cooperation among them, explaining further that the norms must be virtues, like telling the truth, meeting obligations and reciprocity (In: Durlauf, 2004). Coleman adds that social capital is facilitating the 20

21 achievement of goals that could not be achieved in its absence or could be achieved only at a higher cost (In: Durlauf, 2004). Different definitions of social capital, including those of Durlauf (2004), Putnam (2000), Danchev (2005) and Paldam (2000), are summarized in the following scheme. First of all, researchers talk about a group of people, socially connected with each other. They share certain ways of interaction, knowing what they would do for each other. The way they interact stimulates them to work together, increase their productivity and reach common goals. Figure 4.1 Definition of social capital To summarize in a more or less abstract definition, the majority of the literature explains social capital as the interaction in a group stimulating the achievement of a goal. The interaction is a very important aspect of the concept of social capital and needs further explanation. Interaction occurs under common rules and norms, trust in each other and reciprocity. To return to the example at the beginning of this section, all kinds of interaction exist. You use a social network to find a job. Your brother has confidence in you doing a good job, otherwise he would not recommend you at the company. In turn, the company trusts your brother s opinion. Your friends help you move, because they know that either you would do something in return for them (specific reciprocity) or someone else would (generalized reciprocity) (Putnam, 2000). You don t have a strong connection with your colleagues yet, but by having lunch together, you are investing in future cooperation. 21

22 Paldam (2000) argues that all theories about social capital come down to three families : trust, cooperation and network. The first two are intertwined. When social capital is explained from a cooperation point of view, it would be defined as the ability of people to work together to reach a common goal. The ability of people to cooperate voluntarily is usually ascribed to trust: trust in each other enhances cooperation. A distinction can be made between generalized trust (trust to unknown people) and special trust (trust in friends and institutions). An important trust based relationship is the relation between people and the state. Paldam describes that when people trust the government and the institutions, it is also easier to build generalized trust. Looking at the opposite situation, when a government is corrupt and untrustworthy they have spread distrust throughout society (Paldam, 2000). On the other hand, a distrustful state can enhance some types of social capital. When you cannot trust the government to arrange certain things, you are more likely to bond with people around you to protect you from the state (Paldam, 2000). Usually when someone has trust in his group or organization, the other members also have trust in him. This is reciprocal trust. Reciprocity is a frequently mentioned issue in social capital theories. It can also be explained on the basis of the example in this section: your friends help you move because you would do the same for them. Social networks are only interesting if there is a matter of mutual obligations and these obligations do not have to be returned instantly. If your friends help you move you do not have to help them with something the same day. It is much more efficient if you rely on it that the favour will be returned one day and your friends trust you in this (Putnam, 2000). Different distinctions can be made in social capital, for example between strong and weak ties or open and closed social capital. One interesting categorisation is bonding and bridging social capital (sometimes supplemented with linking social capital, e.g. Tomanović, 2008). Bonding social capital concerns the relations with similar people in the same situations, like the friends helping you to move in the example above. The social ties with your colleagues on the other hand are part of bridging social capital. These are interactions between people who are only loosely connected, opening up possibilities for cooperation and innovation (Beekman et al., 2009). Networks of the bridging kind are outward looking, for example a civil rights movement, as opposed to the inward looking networks of bonding social capital, e.g. a country club (Putnam, 2000). Bridging social capital is therefore more focused on linking different groups, while bonding social capital stimulates integration within a group. Another difference is that bonding social capital is characterised by strong ties and bridging social capital by weak ties (Beekman et al., 2009). 22

23 From the above, it seems that social capital always results in positive things. But a network in which everybody trusts each other and relies heavily on each other can be abused. Social capital can have negative external effects, especially for people outside the network, like corruption, discrimination or sectarianism (Putnam, 2000). A well-known example of a network with very strong ties and a high level of bonding social capital, but a negative reputation is the Mafia. However, in general a low level of social capital in a society is associated with a high risk of poverty and social exclusion (Beekman et al., 2009). To place social capital in a broader context, it will be compared with other forms of capital. The United Nations (ESCWA, 2009) calls the following figure the asset pentagon, showing the five types of capital. NATURAL SOCIAL CAPITAL FINANCIAL PHYSICAL HUMAN Figure 4.2 The different types of capital (Source: ESCWA, 2009) Capital in general increases productivity. When thinking of the word capital, financial capital is probably what comes in mind first. Physical capital concerns the tools that enhance productivity, like buildings, land or in the case of the example: the truck used for moving. Human capital refers to education and training of people and natural capital concerns natural resources. The idea of social capital is that, as well as a truck and a driving licence, also social interaction has influence on productivity. As Beekman et al. (2009) quote from Cramb: Natural capital is what you find, physical capital is what you make, financial capital is what you save, human capital is what you know, and social capital is whom you know Social Capital and Economic Development The previous section described the concept of social capital. But why is there so much discussion about social capital, what does social capital explain and what are the advantages of a region with a high level of social capital? 23

24 A lot of literature uses social capital to describe the development of strong communities and the building of human capital. But social capital is more and more linked with economic development, as networks, norms and trust between people stimulate cooperation. Like the other forms of capital, social capital explains the increase or decrease of productivity. Social capital is therefore often used as a factor to explain economic success. As can be concluded from all the different fields of study in which social capital is an explanatory variable, social capital has a positive influence on many aspects of human life. It is for example thought to lower crime rates, make governments more effective and lower transaction costs. Vice versa, poverty and social exclusion are associated with low levels of social capital (Beekman et al., 2009) Social Capital in Rural and Urban Areas As this research focuses on rural regions it is interesting to look at the characteristics of social capital in rural areas as compared to urban areas. Communities and social networks in rural regions differ from those in urban regions, for example when you look at family structures and income. Beaudoin and Thorson (2004) conclude from past research that rural communities show higher levels of social integration and attachment than urban communities. The level of social capital seems higher in rural areas, people are for example more willing to do voluntary work or help strangers (Beaudoin and Thorson, 2004). One clear explanation is the size of the community. A rural community can be so small that everybody is strongly connected and in the same social capital network. Rural networks are more based on geographic characteristics, while urban networks are usually based on equal social characteristics. As compared to urban areas, rural communities are characterised by stronger ties and more bonding social capital. The rural population attaches great importance to family relationships. Because families and rural communities based on family ties are generally homogenous (income, ethnicity, etc.), it is therefore difficult to develop linking social capital. Next to the size of the community, there is another reason why the level of social capital seems higher in rural areas as compared to urban areas. Rural communities are more stable, people live for a long period in the same area and there is less migration. Therefore, enough time exists to build social capital (Beekman et al., 2009). 24

25 4.2. The Measurement of Social Capital How to measure the trust a group has in the state? Or how to quantify in how far people are willing to cooperate? The definitions of social capital are already varied, but the ways to measure it are even more diverse. A widely used measure is the density of voluntary organisations in an area, also called Putnam s Instrument (Paldam, 2000). Organisations like this show that people are willing and able to cooperate and that a certain level of trust exists. Paldam (2000) suggests that the number of contacts with the organisation should be added to Putnam s Instrument, because this better reflects the importance of the organisation. Another method discussed by Paldam is to map people s networks and rank the links between people in the network according to strength and importance. Paldam further describes the following three groups of indicators for social capital at the macro level: Positive measures of democracy and political rights, freedom of the press, human rights, etc. Data on legal protection of the individual and his business: Independence of courts, protection of property rights, and transparency of laws and legal institutions, etc. Negative measures for lack of the above: crime rates, perceptions of corruption, frequencies of civil and political violence, political instability measures, frequencies of labor market strife, etc. (Paldam, 2000). Tsuda et al. (2003) use indicators more in line with the example mentioned in the beginning of section 4.1. They define the variables the use of a broker to acquire job and the use of a friend, relative, or previous employer to acquire job to measure social capital in their study on foreign workers wages. These two variables are supplemented with marital status, gender and ethnicity. Stone (2001) focuses in her paper Measuring Social Capital on questionnaires, asking the respondent for example How many of your neighbours would you say you know personally? or Have you ever contacted a government official to seek help with a personal problem you had?. In his article Social Capital and State Government Quality Knack (2002) uses the social capital variables volunteering, census response, social trust, informal socializing, club meetings and good government group members. Most of the data about these variables is collected from surveys. 25

26 The United Nations Economic and Social Council (ESCWA, 2009) gives various indicators for social capital, ranging from the number of newspapers sold per capita to the percentage of eligible electors who voted in a recent election. Bronisz and Heijman (2010) performed a study about social capital in Poland. They used data about knowledge, associational activity and election turnouts to estimate the level of social capital. Knowledge was further specified in the number of upper secondary students, vocational education students and tertiary students by academic education or occupation. Associational activity consists in the study of Bronisz and Heijman of the number of nongovernmental organisations, volunteers, cultural activities, sports and recreation activities and social welfare services. Data about election turnouts concern eligible voters at a local election. It can be concluded from the examples above that there are many different ways to measure social capital. As is described in Stone s paper (2001) it is important to distinguish between different indicators of social capital. On the one hand, there are indicators which are related to outcomes of reciprocity, trust and networks. On the other hand, some researchers use indicators which are not directly connected to social capital, but are possibly influenced by it, like job growth or crime rates. When using indicators of the last type, relations found should be interpreted more carefully Conclusion Social capital is defined in this research as the interaction in a group, like norms, trust and reciprocity, stimulating the achievement of a common goal. Well-developed social networks make lives easier and more productive. Social capital is therefore thought to be an explanatory variable of economic success. In general, social capital is higher in rural areas as compared to urban areas. One reason for this is that the size of the communities is smaller and the ties between people stronger. A second reason is that in rural areas there is more time to build social capital, because people stay longer in the same community and less migration takes place. There are various ways in the literature to measure social capital. Examples of indicators are corruption and crime rates, the number of voluntary organisations and election turnouts. 26

27 Chapter 5. The Case of Serbia Chapter 5 discusses the case of Serbia. Section 5.1 describes general facts about the country concerning the history, economy, infrastructure and social capital. Section 5.2 discusses the rural areas of Serbia General Facts The Republic of Serbia is a country situated in the Balkan Peninsula in south-eastern Europe. It has a surface of 8.8 million hectare and is landlocked. The neighbouring countries are Hungary, Romania, Bulgaria, Former Yugoslav Republic of Macedonia, Albania, Montenegro, Croatia and Bosnia and Herzegovina. Serbia has a population of approximately 7.5 million inhabitants. The population density measured in 2007 was around 95 persons per square kilometre, for comparison this was around 114 in the EU27 (European Commission, 2009a). Serbia s territory is divided into 24 districts, the districts in turn consisting of several municipalities. With over 1.5 million citizens, the capital Belgrade is the largest city, followed by Novi Sad ( citizens). Serbia has one autonomous province (excluding Kosovo) called Vojvodina, covering the northern part of the country (Serbian Government, 2010a). Figure 5.1 Map of the Republic of Serbia (Source: European Commission, 2009a) 27

28 Serbia s History and Political Situation Serbia has a past full of fights, struggles and political changes, which is not easy to describe in just a few paragraphs. But it is important to understand a little about Serbia s history, because it made the country and its citizens what they are today. In 1918, the aftermath of World War I, the Kingdom of the Serbs, Croats and Slovenes was established. The country s name changed to Yugoslavia in 1929, under the reign of King Alexander I. During World War II, two guerrilla armies fought on the Yugoslavian side against the Nazis who occupied the country. One of these armies was led by Tito (Josip Broz). In 1945, under the power of Tito, the monarchy was abolished and the Communist Federal People s Republic of Yugoslavia was established. Tito became the prime minister, followed by his presidency until his death in May 1980 (Infoplease, 2010). After Tito s death, many feared tensions between the different regions in Yugoslavia, so a system of rotating presidency was put in place. In 1989 Slobodan Milošević became president of the Serbian republic. His aspiration for Serbian dominance led eventually to the breakdown of Yugoslavia. In 1991 first Croatia declared its independence, soon followed by Slovenia and Bosnia. But because of the Serbs living in these countries, Yugoslavia fought hard against independence. With the help of the NATO, peace was signed in November Milošević continued his presidency, but because constitutionally he could not stay for another term as president of Serbia, the name of the country changed into Federal Republic of Yugoslavia in July At this point, the country consisted of Serbia and Montenegro (Infoplease, 2010). In February 1998 new fighting started, this time against the Kosovo Liberation Army. In March 1999 the NATO stepped in and bombed Serbian military targets. This war was ended by a peace signing with NATO in June of Until 2000, Serbia was restricted by sanctions. One of the reasons for these sanctions was violation of human rights under the power of president Milošević. When the new president Kostunica was elected in 2000, most sanctions were abolished. Milošević was turned over to the International Criminal Tribunal for the former Yugoslavia (ICTY) in The Hague (Infoplease, 2010). In February 2003 the Federal Republic of Yugoslavia changed its name into Serbia and Montenegro. This was followed by a declaration of independence of Montenegro in June In February 2008 also Kosovo declared its independence, but this is still of political debate (Europa, 2010b). 28

29 At this moment, the president of the Republic of Serbia is Boris Tadić. The current government led by Prime Minister Mirko Cvetković, delegate of the Democratic Party, was formed on July 7, 2008 (Infoplease, 2010) Serbia s Economy According to the World Bank, Serbia can be considered a middle-income country with potential for a rapid economic growth. Geographically, the country has a strategic position and it has good resources and land. Services are the most important sector, followed by industry and agriculture (World Bank, 2010b). After the wars and sanctions causing economic decline, Serbia showed strong progresses since The country managed to restore its macroeconomic stability, incomes rose and poverty reduced (World Bank, 2010b). But the global economic crisis of 2008 also had its impact on Serbia, its economy going into recession in A deteriorating macroeconomic stability and fiscal deterioration were the results (European Commission, 2009b). Not taking the impact of the economic crisis into consideration, one of the main economic problems in Serbia is the living standards of its citizens. Unemployment, poverty and exclusion of the poor are of major concern. Although unemployment rates are falling, they are still high at around 14 per cent of the labour force (see also graph 5.2). Unemployment is especially a problem among young people and minority groups. As mentioned before, poverty reduced, but one third of the population is just above the poverty line (World Bank, 2010b). Serbia has borders with other transition countries, which are also in the process of joining the EU. It is therefore interesting to put Serbia s economy in the light of the economies of neighbouring countries. It should be noted that these data are from just before the economic crisis, which also had impact on the countries discussed (European Commission, 2009b). The following table shows the GDP s per capita of the candidate and potential candidate countries. For the year 2005 the GDP s are compared to the average GDP per capita in the EU. The EU is set on 100 and the table shows that all countries have GDP s less than half of the EU s average. 29

30 Table 5.1 Gross Domestic Product per capita (EUR) 2005 EU= Croatia F.Y.R. of Macedonia Turkey Albania Bosnia and Herzegovina Montenegro Serbia Kosovo (Source: Eurostat Database, 2010) The following graph shows the real GDP growth rates of Serbia and other (potential) candidate countries. It shows an especially high growth rate for Montenegro and a downward trend for Turkey. The other countries can be said to be close to each other. Figure 5.2 Real GDP growth rate (percentages) (Source: Eurostat Database, 2010) High unemployment levels are a problem in Serbia (World Bank, 2010b). The following graph shows that Serbia is not the only transition country with this problem. Bosnia and Herzegovina, Macedonia and Montenegro see even higher unemployment rates. Although in this graph downward trends can be distinguished, it does not show the impact of the economic crisis. 30

31 Figure 5.3 Total unemployment rates (percentages) (Source: Eurostat Database, 2010) Looking at real GDP growth rate and unemployment rate, it can be said that Serbia shows average results compared to neighbouring countries. There are no big outliers for the country Serbia s Infrastructure Serbia has a road network comparable to that of other countries in Central and Eastern Europe when looking at road density and construction. Serbia s location, at important crossroads, is favourable. Some major international roads are crossing the country, like the E-75 from Norway to Greece and the E-70 from Spain to Turkey. Although Serbia is situated favourably and modern infrastructure could enhance economic growth, the road network is poorly developed. Especially the construction of secondary roads is lagging behind. The total length of the roads is 42,692 kilometres, but only around 60% of these roads have an asphalt surface. Low investments are one of the main reasons for the poor road network. Based on data from 2002, Serbia invests 16 times less in infrastructure than EU countries. Other reasons are inadequate management of funds and insufficient toll collection policies (UNDP, 2008). Areas with the most underdeveloped infrastructure are mainly located in the south. Districts like Pčinja have municipalities where over 95% of the roads is non-asphalt (MNIP, 2009). In March 2010 the Serbian minister for the National Investment Plan Verica Kalanovic stated that the development of infrastructure is a priority and a necessity to reach quicker economic growth (Serbian Government, 2010b). Also the EU recognized the importance of investing in infrastructure in Serbia. For example, the European Agency for Reconstruction (EAR) coordinated until the end of 2008 a road rehabilitation project under the Municipal Infrastructure Support Programme in Serbia, which was financed by the EU. Its goal was to 31

32 contribute to the local economic development of municipalities in Eastern Serbia through the rehabilitation of road infrastructure. Specifically, the EAR wanted to attract more investment, increase foreign trade activities, make the roads safer and gain more income in the region coming from tourism. The EAR thereby believes that good infrastructure can contribute to the objectives mentioned above (MISP, 2010) Serbia s Social Capital The history of Serbia has left its marks on the development of social capital. As described in section 5.1.1, Serbia has long been under the communist regime of Tito. After Tito s death, wars, sanctions and bombings among other political and social conflicts affected the country. According to Danchev (2005) the level of social capital in the Balkans deteriorated during the communist regime. Social capital was strong within communities, but low towards the state (Danchev, 2005). Cvejić (2004) describes social capital in Serbia more or less the same as Danchev. According to him, the fall of socialism lead to a society of which the working was not transparent and where institutions were not able to adapt to the different circumstances. As a consequence, social needs were fulfilled within the primal relational network, like close family. Cvejić states that in post-socialist Serbia, the socialistic authoritarian order was replaced by nationalistic populism. Furthermore, he says that lack of substantive cooperation and trust is expressed through corruption of public officials, large share of informal economy, increasing risk from organized crime, clientelism, etc.. A social network grew propagating nationalistic values, which stimulated a counter-movement to organise civic protest. This democratic movement showed all characteristics of social capital: generalized trust, (mis)trust in institutions and civic participation. But because of again changing circumstances, participants of the movements shifted their focus to the individual level, concerned only about their own economic well-being. According to Cvejić Serbia is at this moment back at the beginning of the building of social capital (Cvejić, 2004). Also Paldam and Svendsen (2001) talk about social capital in countries like Serbia. Their theory is that dictatorship destroys social capital. In the case of a communist regime, they argue that the building of negative social capital is stimulated. The society gets filled with distrust of the state, because governments and institutions are corrupt and untrustworthy. Therefore it could be possible that social capital is built against the state. Eventually when the regime in a country changes, economic development is impeded by this negative social capital (Paldam and Svendsen, 2001). 32

33 Rural Regions in Serbia Rural regions in Serbia were heavily influenced by the economic and social problems in the country at the end of the twentieth century. The rural areas recover slowly, partly because of lack of investment in rural and agricultural development. Next to this many Serbs moved from the rural areas into cities and areas close to main roads. According to Somogyi and Novković (2010) Everybody praises the country but lives in a city. The main reason why people move to the city is because of job opportunities (Somogyi and Novković, 2010). As described previously, Serbia consists of 24 administrative districts. These districts are divided into municipalities, 122 in total. Taking the OECD definition for rural areas a step further, Bogdanov, Meredith and Efstratoglou (2008) made a typology of rural regions in Serbia. After looking at variables like demographic structures and geographical characteristics, they concluded that four types of rural areas exist in Serbia. The first type, Region I, is named Highly productive agriculture and integrated economy. This region is economically the most developed compared to the other three regions. The rural areas categorized in this type are located in the north of the country, surrounding the city of Novi Sad and north of the urban area of Belgrade. Region II areas are Small urban economies with labour intensive agriculture. These are the areas south of urban Belgrade and surrounding the larger towns of Kragujevac and Čačak. The region is characterized by intensive farming and relatively low unemployment. The third type, Region III is largely characterized by its geography: Natural resources oriented economies mostly mountainous. Areas of this type are distinguished by the highest rates of rural poverty and unemployment in Serbia. They are located near the borders with Montenegro and Bosnia and Herzegovina. The last type, Region IV, concerns rural areas with High tourism capacities and poorly developed agriculture. In these regions, the tertiary sector is the highest contributor to the economy. Rural areas of this type are located in the southeast, near the borders with Romania, Bulgaria and Macedonia (Bogdanov et al., 2008). Figure 5.2 shows a map which indicates the location of the different regions. 33

34 Figure 5.4 Four types of rural areas in Serbia (Source: Adjusted from Bogdanov et al., 2008) 5.3. Conclusion Serbia has a history of wars and political conflict, still reflected in the society today. Since the year 2000 Serbia started recovering, but was then hit by the global economic crisis of The main economic problems are unemployment and poverty. Serbia s infrastructure development is lagging behind, although investments in infrastructure are increasing. Due to a history of political changes, the levels of social capital have deteriorated. The rural areas of Serbia can be roughly divided into north, southeast, west and middle. The economically most well developed country is the north. The eastern districts are characterized by the highest poverty and unemployment rates of Serbia. 34

35 Chapter 6. Methodology Chapter 6 discusses the methodology used in this research. Section 6.1 describes the districts of Serbia which are the specific research areas. Section 6.2 follows with a description of the data collected from these study areas. In section 6.3 the data collected about the districts is compared. The chapter ends with a short conclusion in section The Research Strategy Serbia is preparing itself for membership of the EU. On political, social and economic areas the country has to reach EU standards. Serbia s economy is lagging behind and investment in infrastructure, as a part of rural development, is seen as one of the solutions to stimulate economic development. At this moment, Serbia s poor road network is especially affecting the rural areas. As is shown from literature reviews in chapter 3 infrastructure development contributes to economic development. So improving the infrastructure in Serbia could be the key to economic success and integration with the EU countries. In this study a data analysis will be performed consisting of two parts. Data is collected about twelve districts in Serbia. The first analysis will rank the districts according to their performance on the following three categories: infrastructure development, economic development and level of social capital. The second part will analyse relations between the three categories in order to accept or reject the main hypothesis (see section 6.1.2). The research is based on data analysis mainly because it is an objective and efficient way to compare the districts in a short period of time Ranking the Districts One of the goals of this research is to give an overview of the rural areas in Serbia. The different districts will be compared on data about the categories infrastructure, economic performance and social capital. To make a clear comparison, the areas will be ranked according to their performance on these three categories. This will give a first idea about relations between the categories. The following research question will be answered: Which districts perform best on economic development, infrastructure and social capital and which districts score low on these categories? The Role of Social Capital The literature shows that the development of infrastructure will stimulate economic development. But is this true in every case? Will infrastructure development always lead to economic growth? The thought is that social capital plays a role as well. Social capital 35

36 increases productivity, thereby stimulating economic growth. So both aspects, infrastructure and social capital, apart from each other influence the economic performance of a region. But is there a link between the two? Is social capital influencing the effect infrastructure has on economic development? For example, if the level of social capital in a region is low, will that impede the contribution of well-developed infrastructure to the economy? When people in a region trust each other and their local government and when they cooperate efficiently, they might benefit more from a new road than people who live in a society with distrust and corruption. This discussion leads to the main hypothesis of this research: The development of rural infrastructure will only contribute to economic development if there is a high level of social capital. This hypothesis will be tested in the second part of the data analysis, on the basis of the following research questions: Is there a relation between the development of infrastructure and the economic development in the Serbian districts? Is there a relation between the level of social capital and the economic development? Is there a connection between the level of social capital and the contribution of good infrastructure to the economic development? 6.2. The Research Areas This study is limited to twelve of the 24 districts in Serbia. The districts are selected according to the typology of Bogdanov et al. (2008) (see also section 5.2). As this research focuses on rural areas, all districts with municipalities that are categorized as urban are left out of the research. The following twelve districts remain: West Bačka (1) Central Banat (4) Raška (7) Pirot (10) North Bačka (2) Kolubara (5) Toplica (8) Zaječar (11) North Banat (3) Zlatibor (6) Pčinja (9) Bor (12) Figure 6.1 shows the location of the districts and its municipalities. The numbers in the districts correspond with the numbers above. The different colours are used to indicate the borders. 36

37 Figure 6.1 Areas included in this research (Source: Adjusted from Bogdanov et al., 2008) The Data Three categories are of importance for this research: infrastructure, economic development and social capital. For all three categories data is collected. With this data indexes will be made for each of the categories. The data for infrastructure consists of: length of roads, modern surfaced roads as percentage of total roads, length of highways, length of highways with modern surface, length of regional roads, length of regional roads with modern surface, length of local roads and length of local roads with modern surface. This data together will give a good overview in figures of how well developed the infrastructure in the districts is. Data about the economic performance of the districts consists of the GDP per capita, net wages and unemployment level. It will show differences in income and job opportunities between the districts as variables for the level of economic development. The data for social capital consists of election turnouts for local governments, as this is one of the main variables for social capital mentioned in the literature and it reflects the trust people have in their government. The data is retrieved from the Statistical Office of the Republic of Serbia (RZC, 2009 and 2010). The advantage of using one source is that differences in measurement are minimized. 37

38 For the analysis, the statistical programme SPSS is used. The indexes are computed from the standardized values of the variables. For example, the index of economic development is calculated as follows: Economic Development ECODEV = (zgdp+zunempl_r+zwage)/3. Unemployment is in this case reversed, because it has a negative influence on economic development. For looking at the relations between variables the Pearson correlation coefficient is used. The significance level is 0.05 unless mentioned otherwise Descriptive Statistics In this section some general data about the twelve districts will be discussed on the basis of graphs. Figure 6.2 shows the total area of the districts in square kilometres, measured in Zlatibor is by far the largest district with 6142 km 2. North Bačka is the smallest district of the twelve. The remaining districts all have total areas between 2000 and 4000 km 2. Figure 6.2 Total area (km 2 )(Source: data from Annex I ) Looking at population sizes Zlatibor is again the largest district, closely followed by Raška. The gap with the smallest district is large, with Toplica having about one third of the population of Zlatibor. Where North Bačka had the smallest total area, concerning population the district is around the average. 38

39 Figure 6.3 Total population (Source: data from Annex I ) 6.4. Conclusion A data analysis will be performed concerning twelve rural districts in Serbia. The analysis will be done in two parts. The first part is ranking the districts according to their performance on the categories infrastructure, economic development and social capital, to give an overview of the differences and similarities of the regions. The second part looks at statistical relations between the three categories mentioned above. 39

40 Chapter 7. Comparison of the Districts In Chapter 7 the twelve districts are compared to each other. Section 7.1 starts with variables for the three categories infrastructure, economic development and social capital. In section 7.2 the districts are ranked according to their performance on these three categories. Section 7.3 compares the outcomes with the findings from the literature. The chapter ends with a short conclusion in section Economy, Infrastructure and Social Capital The districts are compared according to three categories, namely infrastructure, economic performance and social capital. The following paragraphs will each describe one of the categories. The data can be found in Annex I Economic Performance The GDP per capita is a variable to measure economic performance. In the following graph the GDP s of the twelve districts are shown, in comparison to the average GDP per capita in Serbia. The average of Serbia is set to 100, meaning that districts scoring higher than 100 have a higher GDP than the Serbian average and vice versa. In the figure below it can be seen that only West Bačka scores above average. There is a wide variety between the districts, with GDP s ranging from 39 to 138. Most of the rural regions have a GDP per capita far below the Serbian average. Figure 7.1 GDP per capita (Serbia = 100) (Source: data from Annex I ) Figure 7.1 shows the net average wages per employee per month in Serbian Dinars (RSD). The average nationwide is RSD 32,746 (approximately 430) (RZC, 2010). All rural districts 40

41 have net wages below this average. Noticeably, the districts in the north of the country are closer to the average than the districts in the south. Figure 7.2 Net wages (RSD, monthly average per employee) (Source: data from Annex I ) The following figure shows the levels of unemployment in the twelve districts. The data ranges from 66 unemployed persons per 1000 inhabitants to 160 unemployed. Again, the districts in the south have unfavourable figures: the unemployment rates are the highest is this part of the country. Figure 7.3 Unemployment per 1000 inhabitants (Source: data from Annex I ) A general remark about the figures on economic performance is that there is quite some differentiation between the rural districts. From the figures it can be concluded that the districts in the north (like North Bačka and North Banat) generally perform better than the districts in the south of the country (like Pirot and Pčinja). 41

42 Infrastructure Development This paragraph discusses the level of infrastructure development in the districts. The first graph shows the road network in kilometres. The road network is divided into local and regional roads and highways. Concerning local roads, Zlatibor is a big outlier, followed by Pčinja and Raška. These outliers can be explained by the fact that these regions also have a high total area (see section 6.3). The road network consists in all districts for the largest part of local roads. In most regions this is followed by regional roads and then highways, except for Central Banat and North Bačka which have more kilometres of highway than regional roads. Figure 7.4 Road network (kilometres) (Source: data from Annex I ) The following graph shows the kilometres of road per square kilometre. In this way the size of the district is accounted for. Now, Zlatibor does not score as high as in figure 7.4, but is still in the top together with Pčinja, Raška and Kolubara. The northern districts score very low, with an average road density of around 0.25 kilometre per km 2. 42

43 Figure 7.5 Kilometres of road per km 2 (average) (Source: data from Annex I ) The previous graphs described the road network in terms of length, but the quality of the roadsis not included. The following figure shows the kilometres of roads with a modern surface as a percentage of the total road network. Now it becomes clear that districts like Pčinja, with a high road density, have a poor road quality. The three districts with the lowest road density have the most modern surfaced roads. Still all districts have at least 15 percent of their roads underdeveloped. Figure 7.6 Roads with modern surface (percentage of total road network) (Source: data from Annex I ) The graphs above have shown the road network density and quality in the twelve districts. It can be concluded that the northern districts have low road densities, but on the other hand do have the best quality of roads. Pčinja is the most notable district, as it has the most 43

44 kilometres of road per square kilometre, but the lowest percentage of modern surfaced roads Social Capital For the measurement of social capital the variable election turnout is used. This is the percentage of eligible voters that voted at local elections. The turnouts range from around 34 per cent in West Bačka to 58 per cent in Pirot. Figure 7.7 Election turnouts (percentage voted of eligible voters) (Source: data from Annex I ) Looking at figure 7.7 it seems that the southern districts have higher election turnouts. With reservation it could be said that these districts have more trust in their local governments and therefore a higher level of social capital Ranking the Districts In table 7.1 the districts are ranked according to their scores on indexes of economic development, social capital and development of infrastructure. The most notable ranking can be seen in the economic development column. There is a very clear distinction between regions in the north and regions in the south. When Serbia would geographically be divided into two parts, Kolubara and Bor would be at the borders of the northern part and Zaječar and Zlatibor would be the beginning of the southern part. Concerning economic development, all districts in the northern part have positive indexes and all districts that are located in the south have negative indexes. This means that the northern part of the country has a better developed economy than the south. 44

45 Table 7.1 The ranking of the districts District Economic Rank Social Rank Infrastructure Rank Development Index Capital Index Index North Bačka Central Banat North Banat West Bačka Kolubara Bor Zaječar Zlatibor Raška Toplica Pirot Pčinja (Source: SPSS output, data from Annex I ) Concerning social capital a geographical distinction is less clear, but in general it could be said that the more south the higher the level of social capital. Some rankings are totally opposite compared to economic development. West Bačka is ranked number 1 when looking at economic development, but number 12 when looking at social capital. Vice versa, Pirot and Toplica have the lowest index for economic development but the highest for social capital. Concerning infrastructure development, it is harder to make a general statement. The district with the highest index is Kolubara, whereas Bor scores the lowest. The numbers 10, 11 and 12 in the ranking are located each in different parts of the country: the north, the middle and the south. So also geographically it is hard to find a relation. Using table 7.1 it is difficult to look in a geographical way to the scores on the indexes. Therefore in figure 7.8 the districts are divided into four groups based on their indexes on infrastructure, social capital and economic development (see legend). The darkest blue indicates the highest scores on the index and therefore the most well developed in this category. Again, a clear division can be distinguished in the right map: the economically most well developed districts are in the north and the least developed districts in the south of 45

46 Serbia. Concerning social capital it seems to be the other way around, with higher levels of social capital in the south. When an imaginary line is drawn from northwest to southeast, the districts above this line have lower indexes than the districts below the line. For infrastructure, just as in table 7.1, it is hard to make a statement. When looking at figure 7.6 a distinction could be made between the north and the south. But when using an index, created of multiple variables, this distinction disappears. Infrastructure Social Capital Economic Development < ; 0 0 ; 0.5 > 0.5 Figure 7.8 Ranking the districts of Serbia (Source: data from Table 7.1, maps adjusted from Bogdanov et al., 2008) 7.3. Comparison with the Theory The previous sections described the data about infrastructure, social capital and economic performance and the ranking of the districts. This section will discuss whether the findings are consistent with the theory in Chapters 3, 4 and 5. Starting with the economic performances, in Chapter 5 it was stated that the north is the economically most developed region, compared to the southwest where the poverty and unemployment rates are the highest. This is supported by the data and can clearly be seen in figure 7.8. Chapter 5 also states that the most underdeveloped infrastructure can be found 46

47 in the south. This is true when looking at the variables separately, for example in figure 7.6. But when looking at figure 7.8 this division is not so clear. Chapters 3 and 4 discuss the benefits of good infrastructure and high levels of social capital for economic development. For some districts, like Kolubara, this seems true. But for other districts these relations are disputable. Figure 7.8 actually shows the opposite relation between social capital and economic development: the lower the economic performance, the higher the level of social capital and vice versa. As is discussed in Chapter 4 the level of social capital is higher in rural areas and in small communities. This could be one explanation for the unexpected outcome. A relation could exist between the poorer southern districts and smaller communities, which influences the level of social capital Conclusion When looking at the data about the twelve districts, is it clear that the northern districts perform better on economic development than the southern districts. They have higher GDP s per capita, higher net wages and lower unemployment levels. Ranked on the first place is the district West Bačka and ranked on the last place is Toplica. Noticeable when looking at the development of infrastructure is that the districts in the north have lower road densities than the south, but in turn have the best quality of roads. Kolubara is the district ranked on the first place, Bor comes in last. Against the expectations gained from the literature, the regions which score low on economic development have the highest levels of social capital. West Bačka, which was ranked on the first place concerning economic development, is ranked on the last place concerning social capital. Pirot has the highest level of social capital. 47

48 Chapter 8. Infrastructure, Economy and Social Capital Section 8.1 starts with answering the research questions about relations between infrastructure, economic development and social capital. The results are compared to the theory of previous chapters in section 8.2. The chapter ends with a short conclusion in section Correlations The general hypothesis of this thesis is: The development of rural infrastructure will only contribute to economic development if there is a high level of social capital. This hypothesis will be accepted or rejected after looking at the relations between infrastructure development, economic performance and level of social capital. According to the literature both the development of infrastructure and social capital have positive effects on the economic performance of a region. By looking at the data it will be tested whether these relations hold for the Serbian districts Economic Development and Infrastructure The main question in this paragraph is the following: Is there a relation between the development of infrastructure and the economic development in the Serbian districts? The correlations between the GDP per capita and the variables of infrastructure development (length of roads, roads per km 2 and modern roads) were calculated. It was found that significant correlations exist between the GDP and roads per km 2 as well as between the GDP and modern roads. The relation between the GDP and the modern roads as a percentage of total roads is positive (correlation coefficient of 0.582), as expected. It is more remarkable that the relation between GDP and roads per km 2 is negative (correlation coefficient of ), meaning that districts with higher GDP s per capita have less kilometres of roads per square kilometre. A significant relation between length of roads and GDP per capita only exists when a 0.10 significance level is used. Again, the correlation coefficient is negative (correlation coefficient of ). An explanation could be found in the numbers and sizes of the settlements. The data indeed shows that the richer districts have fewer settlements and more inhabitants per settlement. This indicates that fewer roads are needed to connect the settlements with each other. 48

49 Figure 8.1 below shows the correlation between the variables GDP and modern roads. It is a positive correlation, with two districts that can be considered as outliers. Figure 8.1 Correlation between GDP per capita and modern roads of total roads (Source: SPSS output, data from Annex I) When comparing unemployment and net wages with the variables for infrastructure, no significant relations were found Economic Development and Social Capital The main question in this paragraph is if there is a relation between the level of social capital and the economic development. The answer to this question is yes, but it is not the positive relation which was expected. Between the variables voters with GDP and voters with net wages a significant negative correlation was found (correlation coefficients of and ). Also the correlation between voters and the index for economic development is significantly negative. When the GDP in a district is high, the election turnouts are low. This indicates that higher economic development in Serbian regions is intertwined with lower levels of social capital. The following figure shows this relation. 49

50 Figure 8.2 Correlation between economic development and voters (Source: SPSS output, data from Annex I) An explanation for the negative correlation shown in figure 8.2 could be found in section 4.1.2, where it is stated that social capital is higher in smaller communities. Indeed, when looking at the correlation between social capital and the average population per locality, this relation is significantly negative (coefficient ). More people in a community indicates a lower level of social capital. Next, the correlation between communities and economic development has to be checked. The hypothesis now is that small communities have high levels of social capital (which is already shown) and lower levels of economic development (which has to be proven). New tests show a significant positive correlation (coefficient 0.808) between the level of economic development and the size of the settlements, meaning that larger localities perform better economically. It can therefore be concluded that the negative relationship between economic development and social capital can be explained by the size of the settlement: higher levels of social capital exist in economically less developed and smaller communities The Hypothesis This paragraph will accept or reject the following hypothesis: The development of rural infrastructure will only contribute to economic development if there is a high level of social capital. The main question in this paragraph is the following: Is there a connection between the level of social capital and the contribution of good infrastructure to the economic development? Previous paragraphs have shown that relations between the variables where 50

51 not as expected and to give a general statement about the hypothesis is therefore difficult. There are two main reasons why the hypothesis cannot be accepted. First of all, the relations found between the development of infrastructure and the economic performance are not convincing enough to state that infrastructure contributes to economic development. Secondly, the relation between economic development and social capital turns out to be negative, instead of the expected positive relation Comparison with the Theory There are two main deviations between the theory and the data findings. First of all the relation between infrastructure and economic development is not clear. A positive relation does exist between economic development and modern roads. But with total kilometres of road and roads per km 2 this relation appears to be negative, meaning that poorer districts have more kilometres of roads. This can be explained by the fact that poorer districts have more and smaller settlements, indicating that more roads are needed to connect the settlements. The second deviation is between social capital and economic development. It was expected from the literature that social capital has a positive influence on economic development. The data analysis shows different figures: there is a negative relationship between voters and economic development, meaning that the level of social capital is higher in less developed districts. An explanation can be found in the fact that social capital is higher is smaller communities and that smaller communities in general are economically less developed Conclusion In this chapter the correlations between variables of infrastructure, economic performance and social capital were tested. The following significant correlations were found: GDP * Modern roads positive relation GDP * Roads per km 2 negative relation Economic Development * Voters negative relation Voters * (Population/Localities) negative relation Economic Development * (Population/Localities) positive relation The hypothesis that the development of rural infrastructure will only contribute to economic development if there is a high level of social capital cannot be accepted. There are two main reasons: the positive influence of infrastructure on economic development is not convincingly proven and the relation between economic development and social capital turns out to be negative. 51

52 Chapter 9. Conclusion and Discussion Section 9.1 gives a conclusion of the findings in the previous chapters on the basis of the research questions. In section 9.2 the shortcomings of this research and how they could be solved are discussed. The chapter ends with suggestions for further research Conclusion The previous chapters discussed economic growth, rural development, infrastructure and social capital in general and in the case of Serbia. The starting point of the research was the statement that infrastructure development could be the key to economic success in Serbia. The first chapters discussed existing literature about the importance of infrastructure and what role social capital could play in benefiting from infrastructure development. The last chapters discussed in detail twelve rural districts in Serbia on the basis of data about infrastructure, economic performance and levels of social capital. With the knowledge gained in the previous chapters, the research questions from Chapter 1 will be answered in the following paragraphs. What is the importance of good infrastructure for a country like Serbia? The importance of good infrastructure can roughly be divided into benefits for trade, society, investment and employment. Concerning trade, a well developed road network improves access to the market, lowers transaction costs and stimulates trade with other regions. For society welldeveloped infrastructure stimulates the freedom of movement and social integration, thereby lowering isolation. Moreover, regional inequalities are lowered and the rural population gains more income due to improved trade. A region that is easily accessible due to developed infrastructure can attract more investments from outside the region and can gain more income from the tourist sector. Finally, well-developed infrastructure has shown to be important for employment: jobs are created, unemployment is lower and there are opportunities to commute to work and to find a job in non-agricultural sectors. What role could social capital play in the development of rural infrastructure according to the literature? Social capital, together with other forms of capital, explains the increase or decrease of productivity. Well-developed social networks and interaction make lives more easy and productive and social capital is therefore used as a factor to explain economic success. The role social capital could play in the development of rural infrastructure can go two ways. First of all, the development of infrastructure is less complicated when all the actors involved in building a road can work together without problems. The second role social 52

53 capital can play is in the use of the road network. Modern roads between two rural communities are of no use when the two communities do not interact, i.e. when there is no trade or shared activity. A high level of social capital could therefore increase the benefits from infrastructure development. What are the characteristics of rural areas in Serbia, and specifically, what is the situation concerning rural infrastructure and social capital? Rural areas in Serbia can be divided into four types of regions. The districts in the north of the country have a highly productive agricultural sector and are the economically most well developed region. The second region consists of the districts south of Belgrade and around the larger cities. This region benefits economically from its location around cities. The districts close to the borders with Bosnia and Montenegro are the third region that can be distinguished. These districts have the highest rates of poverty and unemployment. The last region consists of the districts in the southeast and is characterized by the tertiary sector driving the economy. In general, the rural regions recover slowly from the history of wars and conflicts. Many people migrate to the cities in order to find jobs. The levels of social capital have deteriorated in previous years and there is distrust towards the state. Concerning infrastructure, especially roads in the southern rural regions are underdeveloped, with many secondary roads being non-asphalted. Which districts perform best on economic development, infrastructure and social capital and which districts score low on these categories? The research area consists of twelve rural districts. When looking at economic development, the northern districts West Bačka, North Bačka and North Banat perform best. The southern districts Pčinja, Toplica and Pirot score the lowest on economic performance. When looking at social capital, the performances are almost reversed. In this case, the southern districts score the highest on levels of social capital and the northern districts the lowest. Pirot is ranked on the first place and West Bačka on the last. Concerning infrastructure, the northern districts have the least kilometres of roads per square kilometre, but these roads are of the best quality. The district of Kolubara scores the highest on infrastructure development, while Bor is ranked on the last place. Is there a relation between the development of infrastructure and the economic development in the Serbian districts? The answer is that no convincing correlation is found between the infrastructure development and the economic performance. A significant correlation does exist between the GDP per capita and the amount of modern surfaced roads. But when looking at total kilometres of road, it seems that the economically least developed districts 53

54 have the most kilometres of road per square kilometre. An explanation can be found in the fact that these districts have more but smaller settlements, therefore more roads are needed to connect these settlements with each other. The quality of these roads is low, especially in the south of Serbia. Is there a relation between the level of social capital and the economic development? Indeed a significant correlation exists between social capital and economic development, but it is not the positive relation as expected when reading the literature. It was expected that social capital would stimulate economic growth and therefore richer districts were expected to have higher levels of social capital. But it is found that the poorest districts have the highest level of social capital. An explaining factor is the size of the settlements. It was already discussed that levels of social capital are higher in rural areas than in urban, because social capital is more easily built in smaller communities. In small, rural communities, the levels of bonding social capital are high, with strong family ties and traditional societies. When looking at the research areas, the poorer districts have smaller communities than the richer districts and therefore higher levels of social capital. Is there a connection between the level of social capital and the contribution of good infrastructure to the economic development? As is stated in the hypothesis, it was expected that the development of rural infrastructure would only contribute to economic development if there is a high level of social capital in the district. As is shown in the answers to the research questions, the connections between the categories social capital, infrastructure and economy are more complicated. The hypothesis can therefore not be accepted. There are two main reasons for this rejection. First of all, the positive influence of infrastructure on economic development is not convincingly proven. The second reason is that the relation between economic development and social capital turns out to be negative instead of positive. From the answers above it can be concluded that one factor is the explaining link between infrastructure development, economic performance and levels of social capital, namely the size of the settlements. The settlements in the north of Serbia are larger, richer, have lower levels of social capital, and have fewer kilometres of road but of a better quality. The settlements in the south are smaller, poorer, have high levels of social capital and have more kilometres of road but of low quality. Section 9.2 will speculate on how these factors are intertwined and why it all comes down to the size of the settlements. 54

55 9.2. Discussion The conclusions given in the previous section and the analysis on which the conclusions are based leave room for debate. This section starts with a practical discussion on the outcomes, followed by a discussion on the methodology and data analysis Practicality As described previously, it could be said that a dichotomy exists between the northern and the southern districts of Serbia. The following situation could be the case and is an interesting starting point for further research. The small and poor settlements in the south might be very independent and might have almost no interaction with other communities. The communities are traditional with strong family ties, explaining the high level of social capital. Their focus is very local and they have no shared market or shared activities with other settlements. Only the necessary roads between the communities exist. There is no incentive to invest in infrastructure development. Therefore trade stays local and the economies remain small. There are no jobs generated, so people might migrate to the city in order to find a job and the settlements stay small. The communities in the northern districts are more populated. These larger settlements are associated with higher economic growth. It is expected that there is more interaction between the settlements and therefore more reason to invest in the quality of the roads. The level of social capital is changing as communities are becoming more urban. An interesting topic for further research is to look at the types of social capital in the south. Why is this high level of social capital not contributing to economic growth as expected in the literature? Does this have to do with the type of social capital? Is this type of social capital maybe negatively influencing economic growth? And concerning infrastructure, will the development of modern roads stimulate trade between communities and enhance economic activities? Methodology The methodology and data used to arrive at a conclusion in this research leaves room for discussion and improvement. This section will discuss the shortcomings of this research and how they could be tackled in further research. First of all it has to be said that gaining data about Serbia is difficult, especially on a district level. Research constraints are therefore lack of data in general and lack of standardized data in specific. Three main categories of data are used: infrastructure, economic 55

56 performance and social capital. For all three categories it can be recommended that in further research more extensive data sets will be used with data over more years. One of the main shortcomings of this research is the data analysis on social capital. One of the problems arising when using social capital as a variable is that social capital is a comprehensive concept. It can be measured in many ways, but all of them are disputable. In this research data on election turnouts are used as a variable for social capital. This is on its own a justifiable variable, but the conclusions of the research would be more well-founded if the data on election turnouts would be complemented with other variables for social capital. It would also be interesting to make distinctions between the different types of social capital, like bonding and bridging social capital. During this research time and especially resources were lacking to include more variables for social capital. The data analysis is based on correlations. One implication when looking at correlation coefficients is that a statement cannot be made on causation. For example, a positive relation between modern infrastructure and economic development does not necessarily mean that modern infrastructure leads to economic development or vice versa. The only conclusion that can be made from this correlation is that districts with modern infrastructure are generally also economically well developed. This should be kept in mind when discussing the relations between variables. 56

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61 Annex I Data from the Statistical Office of the Republic of Serbia (RZC, 2009 and 2010). Data is from the year 2008 unless mentioned otherwise. GDP Net wages Unemployment Voters Serbia=100 average/employee/month per 1000 inhabitants % voted of total North Bačka Central Banat North Banat West Bačka Kolubara Bor Zaječar Zlatibor Raška Toplica Pirot Pčinja Total area Population Localities Length of roads km 2 total, 2007 numbers km North Bačka Central Banat North Banat West Bačka Kolubara Bor Zaječar Zlatibor Raška Toplica Pirot Pčinja

62 Modern Modern/total length Highways modern surface modern/all*100 roads km all, km km km North Bačka Central Banat North Banat West Bačka Kolubara Bor Zaječar Zlatibor Raška Toplica Pirot Pčinja Regional roads modern surface modern/all*100 Local roads all, km Modern surface modern/all*100 all, km km km North Bačka Central Banat North Banat West Bačka Kolubara Bor Zaječar Zlatibor Raška Toplica Pirot Pčinja

63 Annex II Serbia and the European Union This annex discusses background information on the thesis Rural Infrastructure and the Role of Social Capital: The Road to Economic Development in Serbia. First, the relationship of Serbia with the European Union (EU) will be discussed. Next the enlargement of the EU is described. The focus is on rural regions and rural development. References used in this annex can be found at the end. The History of Serbia s Relationship with the EU Serbia s relationship with the EU started around 30 years ago. A first agreement for cooperation between then Yugoslavia and the EU was signed in The following year the European Commission sent a delegation to establish itself in Belgrade. During the nineties the relationship between the EU and Serbia was at a low level, because of violence in the region, the breakdown of Yugoslavia and sanctions. After the elections in 2000 the relations strengthened again. Since the year 2000 Serbia has benefited from trade agreements with the EU. Almost all Serbian products can be exported to the Union duty free and without quotas (Europa, 2010). The EU is Serbia s main trading partner and trade between the two is expanding. In 2007, Serbia exchanged around 55 per cent of its imports and exports with the EU. Exports consisted mainly out of agricultural products, tires, iron, steel and machinery. Products imported to Serbia were mainly vehicles, diesel fuels and medicaments (European Commission, 2010a). According to the EU, accession of Serbia is of importance for the foreign and security policies in Europe. The EU believes that membership can lead to political stabilization in the Balkan region and a lower risk at conflicts. Next to this, the EU has an economical interest: the internal market will expand and will in the future stimulate economic growth in the Union (Europa, 2010). Commitment to the EU s fundamental ideas, attainments and values is the reason for Serbia to strive for membership (Republic of Serbia, 2009). 63

64 Enlargement of the EU At this moment Serbia has the status of potential candidate country of the EU. This implies that Serbia is promised full membership in the future, when the country is ready and all requirements are met. The other potential candidate countries are Albania, Bosnia and Herzegovina, Montenegro and Kosovo (under UNSC Resolution 1244/99). There is a difference with candidate countries, which are at this moment Croatia, Turkey and the Former Yugoslav Republic of Macedonia. These countries are further in the process of accession and the first two have already started the negotiations. In theory every country in Europe can apply for membership as long as the country [...] respects the principles of liberty, democracy, respect for human rights and fundamental freedoms, and the rule of law (European Commission, 2010b). In practice, applications for membership are the result of already strong connections with the EU. According to the Copenhagen criteria composed in 1993, a candidate country should have: stable institutions that guarantee democracy, the rule of law, human rights and respect for and protection of minorities; a functioning market economy, as well as the ability to cope with the pressure of competition and the market forces at work inside the Union; the ability to assume the obligations of membership, in particular adherence to the objectives of political, economic and monetary union (European Commission, 2010b). In 1995 the criterion was added that the country should also be able to apply EU rules and procedures. When the Copenhagen criteria are met, negotiations between the candidate country and the EU can start. First an extensive analysis is done on whether the country s laws comply with the laws of the EU, known as the acquis communautaire. The process put in motion is very comprehensive, as the candidate country has to demonstrate that it has met all requirements and is ready for accession on all levels. This goes step by step, a country can only start with the next stage if all conditions of the previous stage have been met. When all chapters of the acquis are negotiated and closed, a draft Accession Treaty with terms and conditions is composed. If the Council, the Commission and the European Parliament agree on the Treaty it is signed and the candidate country becomes an acceding state. When also the individual member states ratify the Treaty, the country becomes a member state (European Commission, 2010b). The EU has started a Stabilisation and Association process (SAP) with the Western Balkan countries mentioned previously, in order to prepare the countries for accession and guide them through the political, social and economic reform. The SAP has three aims, the first one 64

65 concerning a smooth transition to a market economy, secondly stimulating regional cooperation and finally the accession to the EU. An important aspect of the SAP is the Stabilisation and Association Agreement (SAA). This is a contract between each individual Western Balkan country and the EU. It contains mutual rights and obligations, especially on the areas of democracy and the EU single market (European Commission, 2010c). The candidate and potential candidate countries receive financial aid from the EU in their pre-accession period, called the Instrument for Pre-accession Assistance (IPA). The five areas of IPA are transition assistance and institution building, cross-border cooperation, regional development, human resources development and rural development. The first two components are open for both candidate and potential candidate countries. The last three components are only accessible for candidate countries. The Directorate-General responsible for the component of rural development is DG Agriculture and Rural Development (European Commission, 2010d). Serbia s Road to Accession A The first important step in Serbia s road to EU membership was taken in 1999 when the EU proposed a Stabilisation and Association Agreement. In 2000, this was followed by preferential trade agreements and Serbia s announcement that the country was prepared to implement the necessary reforms, hereby receiving the status of potential candidate country. In 2004 the EU Council proposes a European Partnership. In a European Partnership (EP) the country s priorities are laid down. During the years, Serbia is being judged on its progresses on both the general conditions for accession as the SAA specifically for Serbia. In 2005, the European Commission gave a positive advice on Serbia s request to become a candidate country, based on the progress Serbia made. But the following year, the negotiations became more complicated and were even cancelled, because the EU believed Serbia was not giving its full cooperation to the International Criminal Tribunal for the former Yugoslavia (ICTY). In 2007 the negotiations were resumed, after Serbia promised to cooperate fully with the Tribunal (Europa, 2010). As mentioned before, the European Commission makes progress reports about reforms in Serbia. Important areas on which Serbia has to improve are the army, corruption and human rights. Concerning the economy, the global economic crisis had a big impact on the country and its macro-economic and fiscal stability have deteriorated. According to the European Commission, Serbia made only small progresses in establishing a functioning market economy. For example the unemployment is still too high (European Commission, 2009a). 65

66 In short, Serbia has the potential to become an EU member state, but needs to improve more on some areas, especially on the political level. In particular the status of Kosovo is of debate, in Serbia as well as in the member states (Europa, 2010). As a part of the IPA the European Commission decided in July 2009 to pay Serbia 100 million budget support. The purpose of the donation is to reduce the impact of the economic crisis and help stabilise the country s economy. The ultimate goal is to continue the integration with the EU despite the crisis and pursue the necessary reforms. In general, the main purposes of the European Commission s budget support are to stimulate economic recovery and minimise the social consequences for inhabitants of the country (European Commission, 2009b). Next to grants, Serbia also receives loans from the EU. In 2009 the European Investment Bank (EIB) signed an important agreement with the country concerning a loan of 1.4 billion. The EIB was established by the Treaty of Rome in 1958 and is the EU s long term lending bank. Its main purposes are integration, development and economic and social cohesion of the member states. The goal of the agreement with Serbia is similar to that of the grant mentioned above: helping fight the financial crisis and continue the integration with the EU. The first payment was made in May 2009 and was aimed at small and medium-sized enterprises and the country s priority projects. Investments are to be done in the following sectors: industry, infrastructure, energy, environmental protection, knowledge economy, health, education and services. According to the EIB an important aspect of the investments will be the the completion of key infrastructure that will connect Serbia with the rest of Europe. This agreement makes Serbia the main beneficiary of EIB funding since 2001 (Europa, 2009). 66

67 Box 1. Overview of Serbia s road to accession EU Serbia relations 1997 The conditions for a bilateral relationship between Serbia and the EU are set by the Council of Ministers The EU presents the new Stabilisation and Association Process (SAP). June 2000 Serbia becomes a potential candidate country for EU membership. November 2000 At the Zagreb Summit the SAP is launched. June The perspective of membership is confirmed. October 2005 Negotiations on the Stabilisation and Association Agreement (SAA) are started. November The SAA is signed. January 2008 First steps towards a visa free regime between Schengen countries and Serbia are made. February 2008 The newest European Partnership with Serbia is adopted by the EU Council. April 2008 Signing of the Stabilisation and Association Agreement (SAA) and the Interim Agreement on Trade and Trade-related issues. May 2008 Serbia received the Road map on Visa liberalisation. May 2008 President Boris Tadic wins the elections. The new government sets European integration as a key priority. August 2008 Serbian parliament votes in favour of the SAA with the EU. October 2009 A new progress report on Serbia is presented by the European Commission. November 2009 The EU Council of Ministers decides that Serbian citizens are not required to have a visa anymore when travelling to the EU. December 2009 Serbia officially applies for membership of the EU. (Source: European Commission, 2010a) 67

68 Rural Development in the EU The following figure shows the EU s territory divided according to the OECD methodology on rural areas. Intermediate Region (IR) is in this case called Significantly Rural, the other two categories are labelled the same as with the OECD methodology. It can be seen that many member states have large rural areas. Figure 1. Rural areas in the EU (Source: European Communities, 2004) As rural areas cover 90% of the EU s territory and more than half of the population lives in rural regions, rural development takes an important role in EU policies. EU rural development policies started with a focus on agricultural production, when the Common Agricultural Policy (CAP) was introduced. But during the years the focus shifted more from farmers towards individuals and groups active in rural areas (European Communities, 2006). The key points of the newest rural development policy for the period , following a reform to the CAP, are listed below: Increasing the competitiveness of the agricultural sector; Enhancing the environment and countryside through support for land management; Enhancing the quality of life in rural areas and promoting diversification of economic activities (European Communities, 2006). 68