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Predation, Taxation, Investment and Violence: Evidence from the Philippines

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  • Eli Berman
  • Joseph Felter
  • Ethan Kapstein
  • Erin Troland

Abstract

This paper explores the relationship between investment and political violence through several possible mechanisms. Investment as a predictor of future violence implies that low private sector investment today provides a robust indicator of high violence tomorrow. “Rent-capture” or predation asserts that investment increases violence by motivating extortion by insurgents. A “hearts and minds” approach links investment to political violence in two possible ways: through an opportunity cost mechanism by which improved economic conditions raise the cost of rebel recruitment; and through a psychological “gratitude” effect which reduces cooperation of noncombatants with rebels. Finally, tax capture implies that government will increase coercive enforcement in an attempt to control areas where increased investment increases tax revenue. We lay out these mechanisms in a framework with strategic interaction between rebels, communities, government and firms within an information-centric or “hearts and minds” counterinsurgency model. We test these mechanisms in the context of the Philippines in the first decade of this century, using information on violent incidents initiated by both rebels and government and new data on industrial building permits, an indicator of economic investment. Increases in investment are positively correlated with both rebel and government initiated violence. In the context of our theory that constitutes unequivocal evidence of predation, is consistent with tax capture, and weighs against predictive investment, opportunity costs or gratitude being a dominant effect.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19266.

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Date of creation: Aug 2013
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Handle: RePEc:nbr:nberwo:19266

Note: DEV PE POL
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  1. Eli Berman & Michael Callen & Joseph H. Felter & Jacob N. Shapiro, 2011. "Do Working Men Rebel? Insurgency and Unemployment in Afghanistan, Iraq, and the Philippines," Journal of Conflict Resolution, Peace Science Society (International), vol. 55(4), pages 496-528, August.
  2. Christopher Blattman & Edward Miguel, 2010. "Civil War," Journal of Economic Literature, American Economic Association, vol. 48(1), pages 3-57, March.
  3. Brückner, Markus & Ciccone, Antonio, 2008. "Rain and the Democratic Window of Opportunity," CEPR Discussion Papers 6691, C.E.P.R. Discussion Papers.
  4. Grossman, Herschel I, 1999. "Kleptocracy and Revolutions," Oxford Economic Papers, Oxford University Press, vol. 51(2), pages 267-83, April.
  5. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, September.
  6. Jack Hirshleifer, 1989. "Conflict and rent-seeking success functions: Ratio vs. difference models of relative success," Public Choice, Springer, vol. 63(2), pages 101-112, November.
  7. Coyne, Christopher J. & Dempster, Gregory M. & Isaacs, Justin P., 2010. "Asset values and the sustainability of peace prospects," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(2), pages 146-156, May.
  8. Hirshleifer,Jack, 2001. "The Dark Side of the Force," Cambridge Books, Cambridge University Press, number 9780521804127, April.
  9. Eli Berman & Jacob N. Shapiro & Joseph H. Felter, 2011. "Can Hearts and Minds Be Bought? The Economics of Counterinsurgency in Iraq," Journal of Political Economy, University of Chicago Press, vol. 119(4), pages 766 - 819.
  10. Timothy Besley & Hannes Mueller, 2012. "Estimating the Peace Dividend: The Impact of Violence on House Prices in Northern Ireland," American Economic Review, American Economic Association, vol. 102(2), pages 810-33, April.
  11. Hirshleifer,Jack, 2001. "The Dark Side of the Force," Cambridge Books, Cambridge University Press, number 9780521009171, April.
  12. Powell, Robert, 2006. "War as a Commitment Problem," International Organization, Cambridge University Press, vol. 60(01), pages 169-203, January.
  13. Svensson, Jakob, 1998. "Investment, property rights and political instability: Theory and evidence," European Economic Review, Elsevier, vol. 42(7), pages 1317-1341, July.
  14. Paul Collier & V. L. Elliott & Håvard Hegre & Anke Hoeffler & Marta Reynal-Querol & Nicholas Sambanis, 2003. "Breaking the Conflict Trap : Civil War and Development Policy," World Bank Publications, The World Bank, number 13938.
  15. Ross, Michael L., 2004. "How Do Natural Resources Influence Civil War? Evidence from Thirteen Cases," International Organization, Cambridge University Press, vol. 58(01), pages 35-67, February.
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