Economic Costs of Conflict

Transcription

1 Economic Costs of Conflict DEVELOPMENT ECONOMICS II, HECER March, 2016

2 Outline Introduction Macroeconomic costs - Basque County Microeconomic costs - education/health Microeconomic costs- social capital Conflict March, / 42

3 Introduction Research Questions What post-conflict programs work best? What determines recovery? What can prevent recurrence of conflict? Conflict March, / 42

4 Introduction Research Questions What post-conflict programs work best? What determines recovery? What can prevent recurrence of conflict? What are the economic costs of conflict? economic growth, physical capital, human capital, social capital Who bears the costs of conflict? Conflict March, / 42

5 Introduction Economic Costs of Conflict Conflict March, / 42

6 Introduction Economic Costs of Conflict Surveys: Blattman & Miguel (2010) Macroeconomic Costs reduce per capita GDP growth reduce FDI inflows,exports, trade flows reduce domestic investment, savings redirect public expenditure to defence reduce tourist inflows, tourism receipts reduce demand for transportation Conflict March, / 42

7 Introduction Economic Costs of Conflict Surveys: Blattman & Miguel (2010) Macroeconomic Costs reduce per capita GDP growth reduce FDI inflows,exports, trade flows reduce domestic investment, savings redirect public expenditure to defence reduce tourist inflows, tourism receipts reduce demand for transportation Micro/Household-level Costs reduce household investments (agriculture) reduce school enrollment, grade completion reduce health (height for age z-scores) reduce reported life satisfaction reduce social capital Conflict March, / 42

8 Introduction Post-conflict scenarios Recovery High rates of return to capital & labor Financial aid - foreign & domestic rapid recovery to steady state possible Poverty traps Depleted capital stock may not recover post-war uncertainties increase risks decrease investments Conflict March, / 42

9 Macroeconomic effects of conflict Conflict March, / 42

10 The Economic Costs of Conflict Abadie, A., & Gardeazabal, J. (2003). The economic costs of conflict: A case study of the Basque Country. American Economic Review, ETA established in 1959, demands independence for Basque country from 1975 ETA becomes violent Business in Basque affects: deaths, kidnappings-for-ransom, extortion, robberies. cease-fire agreement in 1998 Conflict March, / 42

11 The Economic Costs of Conflict Abadie, A., & Gardeazabal, J. (2003). The economic costs of conflict: A case study of the Basque Country. American Economic Review, ETA established in 1959, demands independence for Basque country from 1975 ETA becomes violent Business in Basque affects: deaths, kidnappings-for-ransom, extortion, robberies. cease-fire agreement in 1998 What is the economic cost of extremist violence? comparing Basque region to average Spain not correct- Basque performing better pre-conflict Conflict March, / 42

12 Synthetic Control Method (SCM) J + 1 regions 1 treated, J controls 1,...T 0,...T time periods. Region 1 treated from T O onwards Y it = Yit N + α it D it is the observed outcome for region i at time t α it = Yit I Y it N is the effect of the intervention on region i at time t To estimate (α 1,T0+1,..., α 1,T ) need to estimate Y1t N, for t {T 0+1,...T } Conflict March, / 42

13 Synthetic Control Method (Contd) use pre-treatment information on outcomes and predictors to weight the controls in such a way so that they resemble the treated unit creating a synthetic control counterfactual outcome for the treated unit in post-treatment periods estimated from the outcome for the synthetic control Then ˆα it = Y 1t J+1 treatment effect j=2 ω j Y jt N for t {T 0+1,...T } is the estimated Conflict March, / 42

14 Synthetic Control Method (Contd) Let W = {w j } J+1 j=2 be a set of weights s.t. w j 0 & j=2 J+1 w j = 1 The vector of weights W is chosen to min (X 1 X 0 W ) V (X 1 X 0 W ) X is matrix of pre-treatment Z and Y W is the weight for controls Note it is an extension of the standard difference-in-difference methodology relaxes the assumption of a common linear trend between the treated and the controls in the absence of treatment Conflict March, / 42

15 Economic Costs of violence in Basque Country Treatment: Violence by ETA from 1975 onwards Treated Unit: Basque country Control Units: all other 16 regions Controls are all regions not affected by ETA related violence Outcome Variable: real GDP per capita (1986 prices) Pre-treatment period: Treatment Period: Conflict March, / 42

16 Trends in GDP: Basque vs. Synthetic Control 10% loss in pcgdp over the period Conflict March, / 42

17 GDP Predictor Means Only 2 control regions get positive weights: Catalonia and Madrid. Conflict March, / 42

18 Placebo Tests Placebo test: perform analysis for control as if the control was treated Since control was not treated we should not find any treatment effect Conflict March, / 42

19 Some studies show no long-run effects Miguel, E., Roland, G. (2011). The long-run impact of bombing Vietnam. Journal of Development Economics, 96(1), Conflict March, / 42

20 No effect of bombings on long run poverty in Vietnam Non-bombed areas vs. bombed areas: Bombed areas did NOT have lower... Local poverty rates Consumption levels Infrastructure Literacy Population density Conflict March, / 42

21 No effects of war? Compares districts within Vietnam National growth rate may have been faster in the absence of war Government investment/foreign aid could have gone to other, non-bombed regions Private foreign investment may have been greater if it were not a post-conflict country Selection bias: countries that recover (e.g. Vietnam) more likely to collect good data than countries that collapse (e.g. Somalia) Conflict March, / 42

22 Effects on Human Capital Conflict March, / 42

23 Motivation Conflict March, / 42

24 Case Study: Conflict & Schooling in Tajikistan Shemyakina, O. (2011). The effect of armed conflict on accumulation of schooling: Results from Tajikistan. Journal of Development Economics, 95(2), Tajikistan: Background Independence in 1991 after collapse of Soviet Union Civil war At least 50,000 men killed; 55,000 children orphaned Over 600,000 internally displaced Conflict March, / 42

25 Tajikistan Map Conflict March, / 42

26 Enrollment Rates Conflict March, / 42

27 Estimation Strategy Difference-in-Difference: Exploit variation in geographical extent of violence & exposure of birth cohorts to violence Mandatory schooling between ages Pre Not Affected Region 16+ by 1992 school age but not exposed Affected Region 16+ by 1992 war cohort Conflict March, / 42

28 Estimation Strategy Regression Equation: Assumption: S ijk = α 1j + β 1k + γ 1 (P j K i ) + ɛ ijk In absence of war, same schooling trend in war-affected and peaceful regions No unobserved time-varying region FE correlated with conflict Conflict March, / 42

29 Mandatory Schooling Result: Girls affected Conflict March, / 42

30 Taking Stock: Gender Differences Hypothesis: Equal effects school infrastructure destruction, household displacement, unavailability of teachers should have equal effects Conflict March, / 42

31 Taking Stock: Gender Differences Hypothesis: Equal effects But... school infrastructure destruction, household displacement, unavailability of teachers should have equal effects Boys may be more affected more likely to enlist (or forced conscription) more likely to be sent to work to help HH cope with shock Girls may be more affected Unsafe, protection from rape reduced budget - substitution towards boys Conflict March, / 42

32 Similar effects on health childhood nutrition status long-run health conflict (shock) early life nutrition reduced long-run productivity poverty trap childhood health status has multiple dimensions height-for-age Conflict March, / 42

33 Conflict & behavior in Burundi Burundi: Background 2 ethnic groups: Hutu (85%) & Tutsi (14%) Army - Tutsi dominated; 1993 Government - Hutu dominated 1993: President Melchior Ndadaye (Hutu) assassinated by the Army : Civil war in Burundi over 300,000 killed; 1.2 million displaced Peace process ongoing since Conflict March, / 42

34 Burundi Bundervoet, T., Verwimp, P., & Akresh, R. (2009). Health and civil war in rural Burundi. Journal of Human Resources, 44(2), Compared to non-affected areas, children (under 5) in affected areas had lower height-for-age score more severely affected by greater exposure This short-run health impact of the Burundi civil war could have a long-run welfare impact through an adverse effect on future schooling, adult health, and income levels. Conflict March, / 42

35 Effects on Social Capital Conflict March, / 42

36 Motivation Concerns about the linkages between post-conflict recovery, local institutions and economic development. Conflict March, / 42

37 Motivation Concerns about the linkages between post-conflict recovery, local institutions and economic development. Why do some regions make faster post-conflict recovery than others? Conflict March, / 42

38 Motivation Concerns about the linkages between post-conflict recovery, local institutions and economic development. Why do some regions make faster post-conflict recovery than others? Local cooperative norms growth & development. Preferences (consumption, saving, investment behavior) growth & development. Conflict March, / 42

39 Motivation Concerns about the linkages between post-conflict recovery, local institutions and economic development. Why do some regions make faster post-conflict recovery than others? Local cooperative norms growth & development. Preferences (consumption, saving, investment behavior) growth & development. Conflict can shift social norms affect expectations, preferences, choices Conflict March, / 42

40 Motivation Concerns about the linkages between post-conflict recovery, local institutions and economic development. Why do some regions make faster post-conflict recovery than others? Local cooperative norms growth & development. Preferences (consumption, saving, investment behavior) growth & development. Conflict can shift social norms affect expectations, preferences, choices violence = preferences = post conflict recovery Conflict March, / 42

41 Conflict & behavior in Burundi Voors, M. J., Nillesen, E. E., Verwimp, P., Bulte, E. H., Lensink, R., & Van Soest, D. P. (2012). Violent conflict and behavior: a field experiment in Burundi. American Economic Review, 102(2), : Civil war in Burundi Survey 300 household heads from 35 communities in communities experienced violence during did not explanatory variables collected in a previous 2007 survey main measure of violence is % of community killed during attacks Conflict March, / 42

42 Altruism: Experiment Index: 0 (purely selfish) (totally altruistic) Conflict March, / 42

43 Altruism: Results Conflict March, / 42

44 Risk Aversion: Experiment choose between certain gain/loss and a lottery Conflict March, / 42

45 Risk Aversion: Results Conflict March, / 42

46 Time Preference: Experiment earlier you switch from A to B, more patient Conflict March, / 42

47 Time Preference: Results Conflict March, / 42

48 Results Summary Greater exposure to violence is associated with more altruistic behavior more risk-seeking behavior more impatience Conflict March, / 42

49 Results Summary Greater exposure to violence is associated with more altruistic behavior more risk-seeking behavior more impatience Note: channel not clear in-group cooperation & out-group antagonism are the shifts permanent? effect on future investments ambiguous Conflict March, / 42

50 Can post-conflict aid build social capital? Fearon et al. (2009). Can development aid contribute to social cohesion after civil war? Evidence from a field experiment in post-conflict Liberia. American Economic Review, 99(2), Can community-driven reconstruction (CDR) programs promote social reconciliation & increase social cooperation? Or are social norms and institutions too slow moving? RCT in post-conflict Liberia Treatment villages (42): community development committee (CDC) setup via elections. CDCs then manage & implement dev projects. Control villages (41) - no CDCs. Local cooperation measured via public goods game. Exposure to CDR program increases public goods contribution by 8%. Conflict March, / 42

51 Limitations nonrandom exposure to violence: who are victimized? rich vs. poor gender ethnicity, political participation Conflict March, / 42

52 Limitations nonrandom exposure to violence: who are victimized? rich vs. poor gender ethnicity, political participation nonrandom attrition: who survive? who migrates? Conflict March, / 42

53 Taking stock Long-run: some evidence that capital stocks recover but recovery contingent on political stability & institutions (e.g. Germany, Japan, Vietnam) Conflict March, / 42

54 Taking stock Long-run: some evidence that capital stocks recover but recovery contingent on political stability & institutions (e.g. Germany, Japan, Vietnam) Substantial negative effects on human capital & labor disproportionate burden on the poor, elderly, children & women Conflict March, / 42

55 Taking stock Long-run: some evidence that capital stocks recover but recovery contingent on political stability & institutions (e.g. Germany, Japan, Vietnam) Substantial negative effects on human capital & labor disproportionate burden on the poor, elderly, children & women Effects on social capital little understood. Conflict March, / 42