Transcript Part 2 - Harris School of Public Policy

The Economic Causes and Consequences of
Conflict:
Where the literature stands and where we should go from here
EITM Lecture – PART 2
July 8, 2011
Prof. Oeindrila Dube
Aid and conflict
Discussion:
• What are potential theoretical channels
through which aid may affect conflict?
Theoretical channels
Economic benefits
lower grievances/
raise opportunity
cost of fighting
Aid
Less conflict
State stronger
Less conflict
More gains from
predation
More conflict
Leakage or mistargeting
More conflict
Challenge to Identification
• Selection
– Aid allocated toward good performers  upward bias
– Aid allocated toward “basket cases”  downward bias
Aiding Violence or Peace?
(De Ree and Nillesen, 2009)
• Does development aid affect likelihood of conflict?
– In Sub-Saharan Africa
• Empirical strategy:
– Instrument for aid flow using average donor country GDP
• Results
– Aid reduces the duration of conflict
– Aid has no significant effect on probability of conflict onset
Aid under Fire: Development Projects and
Civil Conflict
Crost and Johnston (2010)
Overview
• Does participation in major community driven
development program affect violence?
• Within country analysis
– Philippines, 2003-2008
• Regression discontinuity design
– Within each province poorest 25% of municipalities eligible for a
major community driven development program
– Running variable: distance of poverty ranking from eligibility
threshold
Feeding Conflict:
The Unitended Consequences of U.S. Food
Aid on Civil War
Qian and Nunn (2011)
Overview
• What is the effect of U.S. wheat aid on conflict?
– 121 recipient countries, over 1967 – 2004
• Empirical strategy
– Instrument U.S. wheat aid with weather in conditions in U.S.
wheat producing regions
– Interact wheat aid with average probability country receives
food aid
Second-stage
First-stage
2SLS estimates of the effect of U.S. Wheat Aid on
the Probability of Conflict
Potential mechanisms
• Increased value of the state
• Diversion of food aid to armed groups
• Alternative mechanism: price effects?
Evidence of military aid diversion
(Dube and Naidu, 2010)
• Rise in U.S. military found to increase paramilitary
violence in Colombia
• Consistent with diversion since
– U.S. military aid goes to the Colombian military, which is
stationed in regions with bases
– U.S. military aid leads to more attacks in base regions by
paramilitary groups (aligned with the Colombian military)
– No equivalent increase in attacks by guerilla groups
Taking stock of the aid-conflict literature
• Mixed results
– Opposite effects of development aid within vs. across country
– Food and military aid found to increase conflict
• Little on understanding why
– Conflict reducing effects: opportunity cost vs. state capacity?
– Conflict promoting effects: diversion, prize, strategic reasons?
• Different effects based on aid type?
– Government, foreign govt./military, NGO disbursement
– Project vs. program aid
3. The Economic Consequences of Conflict
Several recent papers show null effects
• No effect of civil war on consumption, school enrollment
or nutrition in Sierra Leone (Bellows and Miguel, 2006
and 2009)
– Higher participation in collective action and political
participation
• No effect of bombings on long run poverty in Vietnam
(Miguel and Roland , 2010)
Compared to non-bombed areas, bombed areas did
NOT have lower…
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Local poverty rates
Consumption levels
Infrastructure
Literacy
Population density
Doesn’t necessarily imply war was economically
inconsequential
• 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
Profiting from conflict
• Event study methodology to show beneficial effects of
conflict on firms
• Stock returns of partly nationalized corporations
increased during covert coups (Dube, Kaplan and Naidu,
forthcoming)
• Diamond company stock returns declined with end of
Angolan civil war (Guidolin and La Ferrara, 2008)
Stock market returns and Savimbi’s death
What “benefits” did war confer to diamond
companies?
• Entry barriers for other diamond companies were higher
• Bargaining power of Angolan government lower
– Licensing and rent-seeking costs for incumbent firms lower
• Lower transparency standards permitted more profitable
dealings
Taking stock
• Micro results point to interesting compositional effects
• Micro data may not enable us to capture net effects of
conflict on economic performance
– Counterfactual hard to establish with cross-regional comparisons
– Firm event studies are essentially case studies
Way forward on examining economic
consequences of conflict
• Literature lacks an identified cross-country analysis of how
conflict affects economic performance
– Large returns to having the first good instrument
• More interesting to show conditions under which there are
positive and negative effects
– For within or cross-country analysis
– Particularly since micro studies show both effects possible
References
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Bellows, John and Ted Miguel. 2006. “War and Institutions: New Evidence from
Sierra Leone” African Economic Development 96(2).
Bellows, John and Ted Miguel. 2006. “War Local Collective Action in Sierra Leone”
Journal of Public Economics, 2009, 93(11-12), 1144-1157
Besley, Tim and Torsten Persson. 2010. “The Logic of Political Violence.” Quarterly
Journal of Economics.
Collier, Paul and Anke Hoeffler. “Greed and Grievance in Civil Wars” Oxford
Economic Papers Oxford Economic Papers (2004): 563-595
Collier and Anke Hoeffler, “On Economic Causes of Civil War,” October 1998, 50,
563–73.
Collier, Paul and Anke Hoeffler “Greed and Grievance in CivilWar,” Oxford Economic
Papers, 2004, 56 (4), 563–95.
Crost, Benjamin and Patrick Johnston. “Aid Under Fire: Development Projects and
Civil conflict.” Mimeo, Harvard Kennedy School.
De Ree, Jopp and Eleonora Nillesen. 2009. “Aiding Violence or Peace? The Impact of
foreign aid on the risk of conflict in Sub-Saharan Africa.” Journal of Development
Economics. 88: 301-313.
Dube, Oeindrila and Juan Vargas. “Commodity Price Shocks and Civil Conflict:
Evidence from Colombia.” Mimeo, NYU.
References
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Dube, Oeindrila and Suresh Naidu. “Bases, Bullets and Ballots: the Impact of U.S.
Military Aid on Political Conflict in Colombia.” Mimeo, NYU.
Fearon, James and David D. Laitin, “Ethnicity, Insurgency, and Civil War,” American
Political Science Review 2003, 97 (1), 75–90.
Guidolin, M. and E. La Ferrara (2007), “Diamonds are forever, Wars are not. Is
conflict bad for private firms?” American Economic Review, 97(5), 1978-93.
Miguel, Ted, Shanker Satyanath and Ernest Sergenti . 2004. “Economic Shocks and
Civil Conflict: An Instrumental Variables Approach.” Journal of Political Economy.
112(4): 725-733.
Miguel, Ted and Shanker Satyanath. Forthcoming. “Re-examining economic Shocks
and Civil Conflict.” AEJ-Applied.
Miguel, Ted and Gerard Roland. The Long Run Impact of Bombing Vietnam. Journal
of Development Economics (forthcoming).
Qian, Nancy and Nathan Nunn. “ Feeding Conflict: the Unintended Consequences
of Food Aid on Civil War.” Mimeo, Yale University.
Yanagizawa-Drott, David, “Propaganda and Conflict: Theory and Evidence from the
Rwandan Genocide,” 2010. Working Paper, Harvard University.