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Civil War and Human Development: Impacts of Finance and Financial Infrastructure

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  • Baddeley, M.

Abstract

In this paper interactions between finance, development and armed conflict are explored to demonstrate that financial factors are crucial in sustaining conflict-underdevelopment feedback loops. Military expenditure drains resources, financial instability leads to conflict (and vice versa), war retards the development of financial institutions/infrastructure, and interactions between finance and conflict are exacerbated by distributional struggles. Some of these feedback effects are captured within a two-stage model of war, finance and development and this is used as the basis for an empirical analysis. Econometrically, the model is estimated using panel estimation and two stage Probit least squares (2SPLS) binary dependent variable estimation techniques to control for simultaneity and heterogeneity. The results suggest that financial constraints and financial instability increase the chances of civil war directly and, via negative impacts on development, indirectly too.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1127.

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Date of creation: 24 Feb 2011
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Handle: RePEc:cam:camdae:1127

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  1. Paul Collier & Anke Hoeffler & Dominic Rohner, 2006. "Beyond Greed and Grievance: Feasibility and Civil War," CSAE Working Paper Series 2006-10, Centre for the Study of African Economies, University of Oxford.
  2. Daron Acemoglu & Davide Ticchi & Andrea Vindigni, 2009. "Persistence of Civil Wars," EIEF Working Papers Series 0910, Einaudi Institute for Economics and Finance (EIEF), revised Sep 2009.
  3. M. Voorst & E. Nillesen & Philip Verwimp & E. Bulte & Robert Lensink & D. van Soest, 2010. "Does conflict affect preferences? Results from field experiments in Burundi," Working Papers ECARES 2010_006, ULB -- Universite Libre de Bruxelles.
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