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The Economic Costs of Conflict: A Case-Control Study for the Basque Country

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Author Info
Abadie, Alberto (Harvard U)
Gardeazabal, Javier (U of the Basque Country)

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Abstract

This paper investigates the economic effects of conflict, using the terrorist conflict in the Basque Country as a case study. Our analysis rests on two different strategies. First, we use a combination of other regions to construct a ``synthetic'' control region which resembles many relevant economic characteristics of the Basque Country before the outset of political terrorism in the 1970's. The subsequent economic evolution of this ``counterfactual'' Basque Country without terrorism is compared to the actual experience of the Basque Country. We find that, after the outbreak of terrorism, per capita GDP in the Basque Country declined about 10 percent points relative to the synthetic control region. Moreover, this gap seemed to widen in response to spikes in terrorist activity. The second part of this study uses the truce declared in September 1998 as a natural experiment to estimate the effects of the conflict. If the terrorist conflict was perceived to have a negative impact on the Basque economy, stocks of firms with a significant part of their business in the Basque Country should have shown a positive relative performance as the truce became credible, and a negative relative performance at the end of the cease-fire. We find evidence that is consistent with this conjecture using event study methods.

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Paper provided by Harvard University, John F. Kennedy School of Government in its series Working Paper Series with number rwp01-048.

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Date of creation: Dec 2001
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Handle: RePEc:ecl:harjfk:rwp01-048

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  6. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August. [Downloadable!] (restricted)
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  8. Daron Acemoglu & James Robinson, 1999. "A Theory of Political Transitions," Working papers 99-26, Massachusetts Institute of Technology (MIT), Department of Economics.
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  12. Enders, Walter & Sandler, Todd, 1996. "Terrorism and Foreign Direct Investment in Spain and Greece," Kyklos, Blackwell Publishing, vol. 49(3), pages 331-52.
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Cited by:
(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. Amy Finkelstein, 2003. "Health Policy and Technological Change: Evidence from the Vaccine Industry," NBER Working Papers 9460, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. 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!]
  3. Carlos Pestana Barros, 2003. "An intervention analysis of terrorism: the spanish eta case," Defence and Peace Economics, Taylor and Francis Journals, vol. 14(6), pages 401-412, December. [Downloadable!] (restricted)
  4. Stefano DellaVigna & Eliana La Ferrara, 2007. "Detecting Illegal Arms Trade," NBER Working Papers 13355, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Jordi Pons-i-Novell & Ramon Tremosa-i-Balcells, 2005. "Macroeconomic effects of Catalan fiscal deficit with the Spanish state (2002--2010)," Applied Economics, Taylor and Francis Journals, vol. 37(13), pages 1455-1463, July. [Downloadable!] (restricted)
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  6. Ouarda Merrouche, 2006. "Economic Consequences of Wars: Evidence from Landmine Contamination in Mozambique," Economics Working Papers ECO2006/22, European University Institute. [Downloadable!]
  7. Massimo Guidolin & Eliana La Ferrara, 2006. "Diamonds are forever, wars are not. Is conflict bad for private firms?," Working Papers 2005-004, Federal Reserve Bank of St. Louis. [Downloadable!]
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  8. 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!]
  9. Tim Krieger & Daniel Meierrieks, 2008. "What causes terrorism?," Working Papers 12, University of Paderborn, CIE Center for International Economics. [Downloadable!]
  10. Jose-Luis Evia & Roberto Laserna & Stergios Skaperdas, 2008. "Socio-Political Conflict and Economic Performance in Bolivia," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  11. Bruno S. Frey & Simon Luechinger, . "Terrorism: Deterrence May Backfire," IEW - Working Papers iewwp136, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  12. Ouarda Merrouche, 2007. "Landmines, Poverty and Recovery: Instrumental Variables Evidence from Mozambique," Working Papers 200709, Geary Institute, University College Dublin. [Downloadable!]
  13. Carlos P. Barros & Guglielmo Maria Caporale & Luis A. Gil-Alana, 2006. "Eta Terrorism:Police Action, Political Measures And The Influence Of Violence On Economic Activity In The Basque Country," Economics and Finance Discussion Papers 06-03, Economics and Finance Section, School of Social Sciences, Brunel University. [Downloadable!]
  14. Johansson-Stenman, Olof, 2006. "Mad Cows, Terrorism and Junk Food: Should Public Policy Reflect Subjective or Objective Risks?," Working Papers in Economics 194, Göteborg University, Department of Economics. [Downloadable!]
  15. Sumon Kumar Bhaumik & Ira N. Gang & Myeong-Su Yun, 2007. "Rationality as a Barrier to Peace: Micro-Evidence from Kosovo," IZA Discussion Papers 2682, Institute for the Study of Labor (IZA). [Downloadable!]
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  16. Bruno S. Frey & Simon Luechinger, . "Measuring Terrorism," IEW - Working Papers iewwp171, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  17. Carlos Pestana Barros & Luis Gil-Alana, 2006. "Eta: A Persistent Phenomenon," Defence and Peace Economics, Taylor and Francis Journals, vol. 17(2), pages 95-116, April. [Downloadable!] (restricted)
  18. Shamit Chakravarti & Rina Bhattacharya & Benedict J. Clements & Sanjeev Gupta, 2002. "Fiscal Consequences of Armed Conflict and Terrorism in Low- and Middle-Income Countries," IMF Working Papers 02/142, International Monetary Fund. [Downloadable!]
  19. Ziv Naor-super-1, 2006. "Untimely Death, The Value Of Certain Lifetime And Macroeconomic Dynamics," Defence and Peace Economics, Taylor and Francis Journals, vol. 17(4), pages 343-359, August. [Downloadable!] (restricted)
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