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Poverty, Armed Conflict and Financial Instability

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Author Info
Baddeley, M.C.

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Abstract

Civil conflict has far-reaching effects on underdeveloped economies. Whilst military expenditure may be diverted into projects that encourage human capital accumulation and the construction of essential infrastructure, conflict destroys institutions and infrastructure generating financial instability and exacerbating stagnation and underdevelopment. Vicious circles emerge as socioeconomic instability contributes to ongoing civil unrest and financial instability, in turn increasing the risk of future conflicts. In this paper, the relationships between conflict, finance and poverty are analysed by exploring the hypothesis that poverty and conflict are magnified by financial factors. Interactions between conflict, absolute poverty and finance are estimated using least squares and binary dependent variable techniques adapted to capture simultaneity, with heterogeneity captured using fixed effects techniques. The results suggest a strongly significant positive relationship between poverty and conflict; the risk of war is positively associated with financial factors suggesting that financial resources will influence poverty indirectly by increasing risks of conflict.

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File URL: http://www.econ.cam.ac.uk/dae/repec/cam/pdf/cwpe0857.pdf
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Publisher Info
Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0857.

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Date of creation: Dec 2008
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Handle: RePEc:cam:camdae:0857

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Related research
Keywords: Civil conflict; absolute poverty; development finance.;

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Find related papers by JEL classification:
O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
P46 - Economic Systems - - Other Economic Systems - - - Household Behavior

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  2. Goodhand, Jonathan, 2003. "Enduring Disorder and Persistent Poverty: A Review of the Linkages Between War and Chronic Poverty," World Development, Elsevier, vol. 31(3), pages 629-646, March. [Downloadable!] (restricted)
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  5. Paul Collier & Anke Hoeffler, 2006. "Military expenditure in post-conflict societies," Economics of Governance, Springer, vol. 7(1), pages 89-107, 01. [Downloadable!] (restricted)
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  6. Knight, Malcolm & Loayza, Norman & Villanueva, Delano, 1996. "The peace dividend : military spending cuts and economic growth," Policy Research Working Paper Series 1577, The World Bank. [Downloadable!]
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  7. Garfinkel, Michelle R, 1994. "Domestic Politics and International Conflict," American Economic Review, American Economic Association, vol. 84(5), pages 1294-1309, December. [Downloadable!] (restricted)
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  8. Collier, Paul & Gunning, Jan Willem, 1995. "War, peace and private portfolios," World Development, Elsevier, vol. 23(2), pages 233-241, February. [Downloadable!] (restricted)
  9. Shorrocks, Anthony F, 1995. "Revisiting the Sen Poverty Index," Econometrica, Econometric Society, vol. 63(5), pages 1225-30, September. [Downloadable!] (restricted)
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  12. Ohanian, Lee E, 1997. "The Macroeconomic Effects of War Finance in the United States: World War II and the Korean War," American Economic Review, American Economic Association, vol. 87(1), pages 23-40, March. [Downloadable!] (restricted)
  13. Sen, Amartya K, 1976. "Poverty: An Ordinal Approach to Measurement," Econometrica, Econometric Society, vol. 44(2), pages 219-31, March. [Downloadable!] (restricted)
  14. Richard W. Blundell & James L. Powell, 2004. "Endogeneity in Semiparametric Binary Response Models," Review of Economic Studies, Blackwell Publishing, vol. 71, pages 655-679, 07. [Downloadable!] (restricted)
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