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The Economic Costs of Civil War: Synthetic Counterfactual Evidence and the Effects of Ethnic Fractionalization

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  • Stefano Costalli

    (University of Essex)

  • Luigi Moretti

    (Univeristy of Padova)

  • Costantino Pischedda

    (Columbia University)

Abstract

There is a consensus that civil wars entail enormous economic costs, but we lack reliable estimates, due to the endogenous relationship between violence and socio-economic conditions. This paper measures the economic consequences of civil wars with the synthetic control method. This allows us to identify appropriate counterfactuals for assessing the national-level economic impact of civil war in a sample of 20 countries. We find that the average annual loss of GDP per capita is 17.5 percent. Moreover, we use our estimates of annual losses to study the determinants of war destructiveness, focusing on the effects of ethnic heterogeneity. Building on an emerging literature on the relationships between ethnicity, trust, economic outcomes, and conflict, we argue that civil war erodes interethnic trust and highly fractionalized societies pay an especially high �price�, as they rely heavily on interethnic business relations. We find a consistent positive effect of ethnic fractionalization economic war-induced loss.

Suggested Citation

  • Stefano Costalli & Luigi Moretti & Costantino Pischedda, 2014. "The Economic Costs of Civil War: Synthetic Counterfactual Evidence and the Effects of Ethnic Fractionalization," HiCN Working Papers 184, Households in Conflict Network.
    • Handle: RePEc:hic:wpaper:184
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