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Diamonds are Forever, Wars are Not: Is Conflict Bad for Private Firms?

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Author Info
Guidolin, Massimo
La Ferrara, Eliana

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Abstract

This Paper studies the relationship between civil war and private investment in a poor, resource abundant country using microeconomic data for Angola. We focus on diamond mining firms and conduct an event study on the sudden end of the conflict, marked by the death of the rebel movement leader in 2002. We find that the stock market perceived this event as ‘bad news’ rather than ‘good news’ for companies holding concessions in Angola, as their abnormal returns declined by 4 percentage points. The event had no effect on a control portfolio of otherwise similar diamond mining companies. This finding is corroborated by other events and by the adoption of alternative methodologies. We also use nonparametric techniques with daily data on the intensity of conflict, and find that moderate levels of violence increased the abnormal returns of the ‘Angolan’ portfolio. We interpret our results in the light of the widespread rent seeking in the Angolan mineral industry.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4668.

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Date of creation: Oct 2004
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Handle: RePEc:cpr:ceprdp:4668

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Related research
Keywords: Angola; civil war; event studies; rent-seeking;

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Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Alberto Abadie & Javier Gardeazabal, 2001. "The Economic Costs of Conflict: A Case-Control Study for the Basque Country," NBER Working Papers 8478, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Collier, Paul & Hoeffler, Anke, 1998. "On Economic Causes of Civil War," Oxford Economic Papers, Oxford University Press, vol. 50(4), pages 563-73, October.
  3. Alesina, Alberto & Perotti, Roberto, 1996. "Income distribution, political instability, and investment," European Economic Review, Elsevier, vol. 40(6), pages 1203-1228, June. [Downloadable!] (restricted)
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  4. Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September. [Downloadable!] (restricted)
  5. Svensson, Jakob, 1998. "Investment, property rights and political instability: Theory and evidence," European Economic Review, Elsevier, vol. 42(7), pages 1317-1341, July. [Downloadable!] (restricted)
  6. Johnson, Simon & Mitton, Todd, 2003. "Cronyism and capital controls: evidence from Malaysia," Journal of Financial Economics, Elsevier, vol. 67(2), pages 351-382, February. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Massimo Guidolin & Eliana La Ferrara, 2005. "The economic effects of violent conflict: evidence from asset market reactions," Working Papers 2005-066, Federal Reserve Bank of St. Louis. [Downloadable!]
  2. Ouarda Merrouche, 2006. "Economic Consequences of Wars: Evidence from Landmine Contamination in Mozambique," Economics Working Papers ECO2006/22, European University Institute. [Downloadable!]
  3. Tom Bundervoet & Philip Verwimp & Richard Akresh, 2007. "Health and Civil War in Rural Burundi," IZA Discussion Papers 2951, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Akresh, Richard & Verwimp, Philip & Bundervoet, Tom, 2007. "Civil war, crop failure, and child stunting in Rwanda," Policy Research Working Paper Series 4208, The World Bank. [Downloadable!]
  5. Ouarda Merrouche, 2007. "Landmines, Poverty and Recovery: Instrumental Variables Evidence from Mozambique," Working Papers 200709, Geary Institute, University College Dublin. [Downloadable!]
  6. Kyle Hyndman, 2005. "Status Quo Effects in Bargaining: An Empirical Analysis of OPEC," Industrial Organization 0511016, EconWPA. [Downloadable!]
    Other versions:
  7. Raddatz, Claudio, 2009. "Multilateral debt relief through the eyes of financial markets," Policy Research Working Paper Series 4872, The World Bank. [Downloadable!]
  8. Timothy Besley & Hannes Mueller, 2009. "Estimating the Peace Dividend:The Impact of Violence on HousePrices in Northern Ireland," STICERD - Economic Organisation and Public Policy Discussion Papers Series 011, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
  9. Stefano DellaVigna & Eliana La Ferrara, 2007. "Detecting Illegal Arms Trade," NBER Working Papers 13355, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Jo Thori Lind & Karl Ove Moene & Fredrik Willumsen, 2009. "Opium for the Masses? Conflict-Induced Narcotics Production in Afghanistan," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  11. Olsson, Ola, 2004. "Diamonds Are a Rebel’s Best Friend," Working Papers in Economics 156, Göteborg University, Department of Economics.
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  12. Ouarda Merrouche, 2006. "The long-term educational cost of war: evidence from landmine contamination in Cambodia," IFS Working Papers W06/11, Institute for Fiscal Studies. [Downloadable!]
  13. Joshua D. Angrist & Adriana D. Kugler, 2007. "Rural Windfall or a New Resource Curse? Coca, Income, and Civil Conflict in Colombia," IZA Discussion Papers 2790, Institute for the Study of Labor (IZA). [Downloadable!]
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