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Drugs and Violence in Afghanistan: A Panel VAR with Unobserved Common Factor Analysis

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  • Bove, Vincenzo

    ()
    (Department of Government, University of Essex)

  • Elia, Leandro

    ()
    (Department of Economics and Statistics, Università della Calabria)

Abstract

This paper addresses the relationship between the level of violence and the opium market in Afghanistan’s provinces. We first provide an overview of the nature and extent of the Afghan drug trafficking. This is followed by a VAR analysis of the nexus opium-insurgency activities using monthly time-series data on opium prices and the number of security incidents for 15 Afghan provinces over the period 2004-2009. We use a multifactor error structure, the Common Correlated Effect (CCE), to include unobservable common factors; Impulse Response functions to describe the time path of the dependent variables in response to shocks; and the Mean Group Estimator to summarize our results across the provinces. Results suggest a conflict-induced reduction in opium prices, while the reverse opium-violence mechanism is mostly negligible. Moreover, unobservable common factors are the main drivers of opium prices and violence.

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Bibliographic Info

Paper provided by Network of European Peace Scientists in its series NEPS Working Papers with number 2/2011.

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Length: 20 pages
Date of creation: 12 Dec 2011
Date of revision:
Handle: RePEc:ris:nepswp:2011_002

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Keywords: Conflict; Opium; Afghanistan;

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  1. Pesaran, M.H. & Smith, R., 1992. "Estimating Long-Run Relationships From Dynamic Heterogeneous Panels," Cambridge Working Papers in Economics 9215, Faculty of Economics, University of Cambridge.
  2. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
  3. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
  4. Markus Brückner & Antonio Ciccone, 2007. "International commodity prices, growth and the outbreak of Civil War in Sub-Saharan Africa," Economics Working Papers 1053, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 2009.
  5. Georges Bresson & Badi H. Baltagi & Alain Pirotte, 2007. "Panel unit root tests and spatial dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 339-360.
  6. Jo Thori Lind & Karl Ove Moene & Fredrik Willumsen, 2009. "Opium for the Masses? Conflict-Induced Narcotics Production in Afghanistan," CESifo Working Paper Series 2573, CESifo Group Munich.
  7. Grossman, Herschel I, 1991. "A General Equilibrium Model of Insurrections," American Economic Review, American Economic Association, vol. 81(4), pages 912-21, September.
  8. Edward Miguel & Shanker Satyanath & Ernest Sergenti, 2004. "Economic Shocks and Civil Conflict: An Instrumental Variables Approach," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 725-753, August.
  9. Oeindrila Dube & Juan F. Vargas, 2013. "Commodity Price Shocks and Civil Conflict: Evidence from Colombia," Review of Economic Studies, Oxford University Press, vol. 80(4), pages 1384-1421.
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Cited by:
  1. Gavrilova, Evelina & Bove, Vincenzo, 2013. "Income and Livelihoods in the War in Afghanistan," MPRA Paper 50545, University Library of Munich, Germany.

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