IDEAS home Printed from https://ideas.repec.org/p/fip/fedlwp/2005-066.html
   My bibliography  Save this paper

The economic effects of violent conflict: evidence from asset market reactions

Author

Listed:
  • Massimo Guidolin
  • Eliana La Ferrara

Abstract

This paper studies the effects of conflict onset on asset markets applying the event study methodology. We consider a sample of 112 conflicts during the period 1974-2004 and find that a sizeable fraction of them had a significant impact on stock market indices and on major commodity prices. Furthermore, our results suggest that we are more likely to see investor reactions in response to conflicts that occur in highly polarized settings, possibly because the expected duration and intensity of the conflict is higher.

Suggested Citation

  • 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.
    • Handle: RePEc:fip:fedlwp:2005-066
    as

    Download full text from publisher

    File URL: http://research.stlouisfed.org/wp/2005/2005-066.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Alesina, Alberto & Perotti, Roberto, 1996. "Income distribution, political instability, and investment," European Economic Review, Elsevier, vol. 40(6), pages 1203-1228, June.
    2. Massimo Guidolin & Eliana La Ferrara, 2007. "Diamonds Are Forever, Wars Are Not: Is Conflict Bad for Private Firms?," American Economic Review, American Economic Association, vol. 97(5), pages 1978-1993, December.
    3. Svensson, Jakob, 1998. "Investment, property rights and political instability: Theory and evidence," European Economic Review, Elsevier, vol. 42(7), pages 1317-1341, July.
    4. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(1), pages 222-279, April.
    5. Alberto Abadie & Javier Gardeazabal, 2003. "The Economic Costs of Conflict: A Case Study of the Basque Country," American Economic Review, American Economic Association, vol. 93(1), pages 113-132, March.
    6. Rigobon, Roberto & Sack, Brian, 2005. "The effects of war risk on US financial markets," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1769-1789, July.
    7. Collier, Paul & Hoeffler, Anke, 1998. "On Economic Causes of Civil War," Oxford Economic Papers, Oxford University Press, vol. 50(4), pages 563-573, October.
    8. Paul Collier & Anke Hoeffler, 2004. "Greed and grievance in civil war," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 563-595, October.
    9. Branislav L. Slantchev, 2004. "How Initiators End Their Wars: The Duration of Warfare and the Terms of Peace," American Journal of Political Science, John Wiley & Sons, vol. 48(4), pages 813-829, October.
    10. Fearon, James D. & Laitin, David D., 2003. "Ethnicity, Insurgency, and Civil War," American Political Science Review, Cambridge University Press, vol. 97(1), pages 75-90, February.
    11. 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.
    12. Justin Wolfers & Eric Zitzewitz, 2009. "Using Markets to Inform Policy: The Case of the Iraq War," Economica, London School of Economics and Political Science, vol. 76(302), pages 225-250, April.
    13. José Garcia Montalvo & Marta Reynal-Querol, 2004. "Ethnic polarization, potential conflict and civil wars," Economics Working Papers 770, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 2005.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Christopher Blattman & Edward Miguel, 2010. "Civil War," Journal of Economic Literature, American Economic Association, vol. 48(1), pages 3-57, March.
    2. Christopher Blattman, 2009. "Civil War: A Review of Fifty Years of Research," Working Papers id:2231, eSocialSciences.
    3. Robert MacCulloch & Silvia Pezzini, 2010. "The Roles of Freedom, Growth, and Religion in the Taste for Revolution," Journal of Law and Economics, University of Chicago Press, vol. 53(2), pages 329-358, May.
    4. Timothy Besley & Torsten Persson, 2011. "Pillars of Prosperity: The Political Economics of Development Clusters," Economics Books, Princeton University Press, edition 1, number 9624.
    5. Massimo Guidolin & Eliana La Ferrara, 2007. "Diamonds Are Forever, Wars Are Not: Is Conflict Bad for Private Firms?," American Economic Review, American Economic Association, vol. 97(5), pages 1978-1993, December.
    6. David Castells-Quintana & Maria del Pilar Lopez-Uribe & Tom McDermott, 2015. "Climate change and the geographical and institutional drivers of economic development," GRI Working Papers 198, Grantham Research Institute on Climate Change and the Environment.
    7. Singh, Prakarsh, 2011. "Impact of terrorism on investment decisions of farmers: evidence from the Punjab insurgency," MPRA Paper 33328, University Library of Munich, Germany.
    8. Lopez-Uribe, Maria del Pilar & Castells-Quintana, David & McDermott, Thomas K. J., 2017. "Geography, institutions and development: a review ofthe long-run impacts of climate change," LSE Research Online Documents on Economics 65147, London School of Economics and Political Science, LSE Library.
    9. Isaac Kalonda Kanyama, 2017. "Patterns and trends in horizontal inequality in the Democratic Republic of the Congo," WIDER Working Paper Series 151, World Institute for Development Economic Research (UNU-WIDER).
    10. Daron Acemoglu & Leopoldo Fergusson & Simon Johnson, 2017. "Population and Civil War," NBER Working Papers 23322, National Bureau of Economic Research, Inc.
    11. Hönig, Tillman, 2017. "The Impact of Peace: Evidence from Nigeria," MPRA Paper 83302, University Library of Munich, Germany.
    12. Gomes, Joseph Flavian, 2015. "The Political Economy of the Maoist Conflict in India: An Empirical Analysis," World Development, Elsevier, vol. 68(C), pages 96-123.
    13. Tillman Hönig, 2019. "The Impact of Peace: Evidence from Nigeria," HiCN Working Papers 293, Households in Conflict Network.
    14. Isaac Kalonda Kanyama, 2017. "Patterns and trends in horizontal inequality in the Democratic Republic of the Congo," WIDER Working Paper Series wp-2017-151, World Institute for Development Economic Research (UNU-WIDER).
    15. Roberto Ezcurra & Beatriz Manotas, 2015. "Does globalization promote civil war? An empirical research," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 1501, Departamento de Economía - Universidad Pública de Navarra.
    16. Bhattacharya, Prasad Sankar & Chowdhury, Prabal Roy & Rahman, Habibur, 2023. "Does credit availability mitigate domestic conflict?," Economic Modelling, Elsevier, vol. 119(C).
    17. Cemal Eren Arbath & Quamral H. Ashraf & Oded Galor & Marc Klemp, 2018. "Diversity and Conflict," Working Papers 2018-6, Brown University, Department of Economics.
    18. Matija Kovacic & Claudio Zoli, 2021. "Ethnic distribution, effective power and conflict," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 57(2), pages 257-299, August.
    19. Victor Ginsburgh & Shlomo Weber, 2020. "The Economics of Language," Journal of Economic Literature, American Economic Association, vol. 58(2), pages 348-404, June.
    20. Pooja Karnane & Michael A. Quinn, 2019. "Political instability, ethnic fractionalization and economic growth," International Economics and Economic Policy, Springer, vol. 16(2), pages 435-461, April.

    More about this item

    Keywords

    Stock exchanges; Prices;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedlwp:2005-066. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Anna Oates (email available below). General contact details of provider: https://edirc.repec.org/data/frbslus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.